The market demand for a good at ` 4 per unit is 100 units. The price rises and as a result, its market demand falls to 75 units. Find out the new price if the price elasticity of demand of that good is (–)1.
Answers
Answer:
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
Answer:
Price elasticity of demand (E
d
)=(−)
Q
P
×
△P
△Q
Here,P=Rs.4; P
1
=Rs.5;
△P=P
1
−P=Rs.5−Rs.4=Rs.1
Q=25 units ; Q
1
= 20 units ; $$
△Q=Q
1
−Q=(20−25) units = (−)5 units
E
d
=(−)
25
4
×
1
−5
=0.8.