Question

The price of a commodity rises from 5 to 36 per unit and its demand falls from 100 units to 70
units. Calculate its price elasticity of demand.​

Answer 1

Answer:

.We are given,

Percentage fall in demand =20

Initial Price =10

New Price =12

% Increase in Price =2/10×100=20%

We know,

ed=−%change in Demand/%change in price=−20/20=−1

Now, if price rises from 10 to 13

% Change in price −3/10×100=30%

So,

% Change in Demand =% change in Price ×ed=30×−1=−30

So, we can say that if the price rises from Rs. 10 to Rs. 13, i.e by 30%, then the demand will fall by 30%. This is because the good follows unitary elasticity