The market demand for a good at Rs 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
The Answer is Rs. 5.
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
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