Question

The price elasticity of demand for good x is known to be twice that of good y. Price of x falls by 6% while that of y rises by 5 % what are the %change in the quantities of x and y. Ped of y is 2.

Answer 1

Answer:

Explanation:

Given that,

price of good x falls by 6% and price of good y rises by 5%

Price elasticity of demand of y = 2

and it was given that Price elasticity of demand of x is twice that of good y

So, Price elasticity of demand of x = 2 × Ped of y

                                                         = 4.

(1) Price elasticity of demand of x = $\frac{Percentage\ change\ in\ Quantity}{Percentage\ change\ in\ Price}$

                                                    4 = $\frac{Percentage\ change\ in\ Quantity}{6}$

    Percentage change in Quantity = 4 × 6

                                                          = 24%

Therefore, quantity demanded of good x rises by 24%.

(2) Price elasticity of demand of y = $\frac{Percentage\ change\ in\ Quantity}{Percentage\ change\ in\ Price}$

                                                    2 = $\frac{Percentage\ change\ in\ Quantity}{5}$

    Percentage change in Quantity = 2 × 5

                                                          = 10%

Therefore, quantity demanded of good y falls by 10%.