Question

When price of a good is Rs. 7 per unit a consumer buys 12 units. When price falls to

Rs. 6 per Unit he spends Rs. 72 on the goods. Calculate price elasticity of demand by

using the percentage method.​

Answer 1

The price elasticity of demand in this case is 0.

Explanation:

The formula of price elasticity of demand=$\frac{Percentage change in Quantity demanded}{Percentage change in Price}$

Now,Percentage change in quantity demanded=$\frac{Change in quantity demanded}{Original quantity demanded}$

Observe that the original quantity demanded before price change=12 units

Quantity demand following price change$=$$\frac{Rs72}{Rs6}$$=$12 units

Hence,Percentage change in quantity demanded$=$$\frac{(12-12)}{12}$$=$$\frac{0}{12}$$=$0

Percentage change in price$=$$\frac{Change in price}{Original price}$

Now,the original price was Rs 7 per unit and change in price$=$$\, (Rs7-Rs6)$$=$Re 1

Hence,percentage change in price$=$$\frac{1}{7}$$=$0.143 approximately

Thus,Price elasticity of demand$=$$\frac{0}{0.143}$$=$0