With a 10% fall in the price of a commodity, the number of units demanded rises from 20 to 25. Determine the price elasticity of demand. [Ans. eD = 2.5]
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The price elasticity of demand of the given commodity is 2.5
- The price elasticity of demand is the ratio of the percentage change in quantity demanded of a commodity to the percentage change in its price.
- Here it is given that upon 10% fall in the price of the commodity, its demand rises from 20 to 25 units i.e. by 5 units.
- So, the percentage change in quantity demanded is calculated by 5/20 × 100 = 25%.
- Thus the price elasticity of demand is given upon dividing the percentage rise in quantity demanded by the percentage fall in its price i.e. 25%÷10% = 2.5
- Hence the price elasticity of demand for the given commodity is 2.5
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