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Price elasticity of demand for a product is 'unity'. A household buys 25 units of this product at the price of Rs. 5 per unit. If the price of product rises by Rs. 1, how much quantity of the product will the household buy ? |
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Answer» <P> Solution :`{:("Original Quantity (Q) = 25 unitsOriginal Price (P) = Rs. 5"),("NEW Quantity "(Q_(1))=? "RISE in Price "(Delta P)=-Rs. 1),("Change in Quantity "(Delta Q)=? "New Price "(P_(1))=Rs. 6),("Elasticity of Demand (ED) = 1"):}`Price Elasticity of demand `(ED)=(Delta Q)/(Delta P)xx(P)/(Q)` `1=(Delta Q)/(1)xx(5)/(25)i.e.,Delta Q=5` units. As price is increasing, the quantity demanded will DECREASE. It means that New quantity = Original quantity (Q) - Change in quantity `(Delta Q)=25-5` = 20 units New Quantity = 20 units |
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