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A consumer buys 80 units of a good at a price of Rs. 5 per unit. Suppose, the price elasticity of demand is (-) 2. At what price will he buy 64 units ? |
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Answer» Solution :`{:("Original Quantity (Q) = 80 unitsOriginal Price (P) = Rs. 5"),("New Quantity "(Q_(1))=64 " unitsNew Price "(P_(1))=?),("CHANGE in Quantity "(Delta Q)=-16 " unitsChange in Price "(Delta P)=?),("Elasticity of Demand (ED) = "-2):}` Price Elasticity of demand `(ED)=(Delta Q)/(Delta P)XX(P)/(Q)` `-2=(-16)/(Delta P)xx(5)/(80)=Delta P=Rs. 0.5` As the quantity demanded is DECREASING, price will increase. It means that New Price = Original Price (P) + Change in Price `(P)=5+0.5=Rs. 5.5` New Price = Rs. 5.5 |
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