Question

If the price of commodity falls from rs 8 per unit to rs 5 per unit , the consumer demand increases from 10 unit to 16bunits.what is the price elasticity of the demand


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Answer 1

Answer:

Rs. 12.5

Explanation:

Given, percentage change in quantity demanded =100%

P=Rs.10;P

1

=Rs.5;△P=P

1

−P=Rs.5−Rs.10=(−)Rs.5

Percentage change in price =

P

△P

×100=

10

−5

×100=(−)50%

Elasticity of demand (E

d

)=

Percentage change in price

Percentage change in quantity demanded

=(−)

−50%

100%

=2

When quantity demanded falls by 50%.

E

d

=2

Elasticity of demand (E

d

)=

Percentage change in price

Percentage change in quantity demanded

2=(−)

Percentage change in price

−50%

Percentage change in price =(−)

2

−50%

=25%

When price of the commodity rises by 25%, new price =Rs.10+Rs.2.5(25% of 10)=Rs.12.5

Elasticity of demand =2.

New price =Rs.12.5.