Question

When the price of commodity X was ` 10 per unit, people consumed 3,000 units. With fall in price to ` 9, they consumed 3,150 units. State the formula and measure the elasticity of demand for X.​

Answer 1

Answer:

Price elasticity of demand = 0.5

Step-by-step explanation:

From the given information in the question, we have:

• Initial price, P = 10
• Initial quantity demanded, Q = 3,000
• Changed price, P2 = 9
• Changed quantity, Q2 = 3150
• Change in price, ΔP = 1
• Change in quantity demanded, ΔQ = 150

We use the following formula to calculate price elasticity of demand.

$\boxed{\rm E_{(D)} = \dfrac{\%\:Change\, in \, Quantity}{\%\:Change\, in \,price}}$

$\rm E_{(D)} = \dfrac{\frac{\Delta Q}{Q}\times 100}{\frac{\Delta P}{P}\times 100}$

$\rm E_{(D)} = \dfrac{\Delta Q}{\Delta P}\times \dfrac{P}{Q}$

$\rm E_{(D)} = \dfrac{150}{1}\times \dfrac{10}{3000}$

$\rm E_{(D)} = \dfrac{1}{2}$

$\rm E_{(D)} = 0.5$

This implies that price elasticity is less than unit elastic.