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The demand of goods x and y have equal price elaeticy. The demand of x rises from from 100 units to 200 units due to 20 % fall in its price. Calculate % rise in demand of y, if its price falls by 8%. |
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Answer» Solution :In the GIVEN EXAMPLE, first we will calculate Price ELASTICITY of Good X. `{:("Original Quantity (Q) = Rs. 100 UNITS","% Change in Price = -20%"),("New Quantity (Q_(1)) = 250 units","Elasticity of Demand (ED) = ?"),("Change in Quantity "(DQ)=150 " units",):}` Percentage change in demand `=(Delta Q)/(Q)xx100=(150)/(100)xx100=150%` Price Elasticity of Demand (ED) `=("% Change in quantity demanded")/("% Change in price")=(150%)/(-20%)` Price Elasticity of Demand (ED) `=(-)7.5` Now, Price Elasticity of Good `Y=(-)7.5` (as both X and Y have same price elasticity). Let us now calculate % Rise in Demand for good Y % Rise in Demand = ?`""`% Change in Price `=-8%` Elasticity of Demand (ED) `=(-)7.5` Price Elasticity of Demand (ED) `= ("% Change in quantity demanded")/("% Change in price")` `(-)7.5=("% Change in quantity demanded")/(-8%)` Percentage rise in demand = 60% Demand for Good Y will rise by 60% |
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