Question

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Answer 1

Given : Price elasticity of demand for a product is 'unity'. A household buys 25 units or this product at the price of Rs. 5 per unit . Price of the product rises by Rs. 1

To find : New quantity demanded after the increase in the price.

Solution :

It is obvious that the quantity demanded will be decreased with an increase in the price of the commodity. We have to calculate the change in the quantity demanded.

According to the given information, we have :

• $\sf E_{(d)} = 1 \{Price\: Elasticity\}$
• $\sf P = Rs. 5 \{Old\:price\}$
• $\sf \Delta P = Rs. 1 \{Change\:in\:Price\}$
• $\sf Q = 25 \{Quantity\:demanded\}$

We have formula for elasticity of demand,

$\sf\implies E_{(d)} = \dfrac{\%Change\:in\: quantity\: demanded}{\%Change\:in\: price}$

$\sf\implies E_{(d)} = \dfrac{\dfrac{\Delta\: Q\times 100}{Q}}{\dfrac{\Delta\: P\times 100}{P}}$

$\sf\implies1 = \dfrac{\dfrac{\Delta\: Q}{25}}{\dfrac{1}{5}}$

$\sf\implies1 = \dfrac{\Delta\: Q}{5}$

$\pink{ \boxed{\sf\implies5 = \Delta\: Q}}$

Hence there will be a decrease in quantity demanded by 5 units with increase in price by 1 Rs.

Therefore,

New quantity demanded = 25 - 5 = 20.

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