Question

Supposing the initial price of ice cream is? 4 per cup and the initial
demand for ice cream is 1 cup only. If the price of ice cream falls to 32
per cup, demand increases to 4 cups. Find elasticity of demand, using
percentage change method.​

Answer 1

What the variables indicate:

• P = initial price
• P₁ =  new price
• Q = initial quantity demanded
• Q₁ = new quantity demanded

Given:

• P = ₹ 4
• P₁ = ₹ 32
• Q = 1
• Q₁ = 4

To find: The elasticity of demand.

Answer:

$\bf Elasticity\ of\ demand\ =\ \big(-\big)\ \dfrac{P}{Q}\ \times\ \dfrac{\triangle\ Q}{\triangle\ P}$

Note:

• ΔP ⇒ change in price
• ΔQ ⇒ change in quantity demanded

$\sf E_d\ =\ \big(-\big) \dfrac{4}{1}\ \times\ \dfrac{4\ -\ 1}{32\ -\ 4}\\\\\\E_d\ =\ \big(-\big)\ \dfrac{4}{1}\ \times\ \dfrac{3}{28}\\\\\\E_d\ =\ \big(-\big)\ \dfrac{12}{28}\\\\\\E_d\ =\ -\ 0.42$

Therefore, the elasticity of demand is -0.42.