Q)10 percent fall in price of good raises the demand by 20 per cent. Calculate the price elasticity of demand.
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11th
Economics
Consumer Equilibrium and Demand
Consumer Equilibrium
When the price of a good ri...
ECONOMICS
When the price of a good rises from Rs. 10 per unit to Rs. 12 per unit, its quantity demanded falls by 20 percent. Calculate its price elasticity of demand. How much be the percentage change in its quantity demanded, if the price rises from Rs.10 per unit to Rs. 13 pe unit?
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ANSWER
We are given,
Percentage fall in demand =20
Initial Price =10
New Price =12
% Increase in Price =
10
2
×100=20%
We know,
e
d
=−
%change in price
%change in Demand
=−
20
20
=−1
Now, if price rises from 10 to 13
% Change in price −
10
3
×100=30%
So,
% Change in Demand =% change in Price ×e
d
=30×−1=−30
So, we can say that if the price rises from Rs. 10 to Rs. 13, i.e by 30%, then the demand will fall by 30%. This is because the good follows unitary elasticity.
