Question

The percentage change in demand is three times the percentage change in price if the original demand was 30 units at the price of rupees 7 per unit then calculate the price elasticity of demand given price increases by 10%. Indicate whether the demand is elastic or not. Also calculate the new quantity demanded.​

Answer 1

Answer:

The demand is elastic and the new quantity demanded will be 21 units.

Explanation:

The percent change in demand is three times the percentage change in price.  

Suppose the percentage change in price is x. Then the percentage change in demand will be 3x.  

The price elasticity of demand  

= $\frac{Percentage\ change\ in\ demand}{Percentage\ change\ in\ price}$

= $\frac{3x}{x}$

= 3

So, the price elasticity of demand is 3. This means that the demand is relatively elastic as it is higher than 1.  

We know that an increase in price causes a 3 times change in demand.  

This means that if the price increase by 10%, the demand will fall by 30%.

Fall in demand

= 30% of 30

= $\frac{30}{100} \times 30$

= 9

The new quantity demanded will be  

= 30 - 9

= 21