Question

Market demand for a good at a price of 10 per unit is 100 unit. When its price changes ,its market demand falls to 50 units. Find out the new price ,if the elasticity of demand is (-) 2​

Answer 1

Explanation:

Given that,

Initial quantity = 100 units

Initial price = Rs. 4 per unit

New quantity = 75 units

price elasticity of demand = -1

Change in quantity demanded:

= New quantity - Initial quantity

= 75 - 100

= -25 units

Ed = (Change in quantity demanded ÷ Change in price) × (Initial price ÷ Initial quantity)

- 1 = (-25 ÷ Change in price) × (Rs. 4 ÷ 100)

- 1 = (-25 ÷ Change in price) × 0.04

Change in price = 25 × 0.04

                           = Rs. 1

Therefore,

New price = Initial price + change in price

                 = Rs. 4 + Rs. 1

                 = Rs. 5