Question

The quantity demand of a commodity at price Rs. 8 per unit is 600 units.Its price fall by 25% and quantity demanded rises by 120 units.Calculate price elasticity of demand.Is its demand elastic?

Answer 1

It is not elasticity because elasticity is less than unity

I hope this information is sufficient

Answer 2

Percentage change in price= 25%(given)

Total units= 600 units (given)

Change in quantity demanded= 120 units (given)

So, percentage change in demand= 120∕600 × 100= 20%

The elasticity of demand= % of change in demand÷% of change in price = 20÷25= 0.8 %    

∴ the demand is not elastic as the value is less than unity.

Explanation:

Price elasticity of demand shows the sensitiveness or elasticity of change in demand for goods or services in response to the change in price. The demand is elastic if its elasticity value is greater than unity and inelastic demand if the elasticity value is less than unity.