The price of a commodity is 10 per unit and its quantity demanded at this price is 500 units. If its
quantity demanded rises by 75 units due to fall in price by 10 per cent, calculate its price elasticity of
demand.
{Ed = (-)1.5
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Answer:
-1.3256
Explanation:
The Elasticity is nothing but the percentage change in demand divided by percentage change in price
Ed = %∆Qdemand/%∆price
given
Initial quantity = 500 units
Initial price = 10
Final quantity = 575 units
Final price = 90% of 10 = 9
Ed = ((575-500)/((575+500)/2))/((9-10)/((9+10)/2))
Ed = 0.0349 / -0.0263
Ed =-1.3256
Also additional info as |Ed| = 1.3256 is greater than 1 it is elastic in nature
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