Question

When price is 20 rupees per unit, demand for a commodity is 500 units as price falls to 15 rupees per unit, demand expands to 800 units.Calculate price elasticity of demand

Answer 1

Answer:

In this case we will calculate elasticity using arc elasticity concept

Here,

initial quantity(q₁) = 500, initial price(p₁) = 20

final quantity(q₂) = 800, final price(p₁) = 15

∴ price elasticity of demand

= {(p₁+p₂)(q₁-q₂)}/{(q₁+q₂)(p₁-p₂)}

= {(20+15)(500-800)}/{(500+800)(20-15)}

= {35×(-300)}/(1300×5)

= -21/13