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A decline in the price of good X by Rs. 5 causes an increase in its demand by 20 units to 50 units. The new price is Rs. 15. Calculate elasticity of demand. |
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Answer» SOLUTION :Let Initial Price `[P]=x` New Price `[P_(1)]=` [Initial Price] `x-5` [As GIVEN that price falls by 5] New Price `[P_(1)]=15` [Given] Then, Initial Price [P] = New Price `[P_(1)]+5=15+5=20` initial Quantity [Q] = 30 [As given quantity increase by 20 units and which goes to 50] New quantity `[Q_(1)]=50` `{:("Initial Price (P) = 20" "Initial Quantity (Q) = 30"),("New Price "(P_(1))=15"New Quantity "(Q_(1))=50),(DELTA P=[-]5""Delta Q=20):}` `PED=(Delta Q)/(Delta P)xx(P)/(Q)=(20)/((-)5)xx(20)/(30)=(400)/((-)150)=(-)2.66` Negative Sign of ED indicates that inverse relationship between price and quantity demanded. PED = 2.66 [More than unitary elastic DEMAND or Elastic demand] |
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