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The price elasticity of demand of good X is half the price elasticity of demand of Good Y. A 25% rise in the price of good Y reduces its demand from 400 units to 300 units. Calculate percentage rise in demand of good X when its price falls from Rs. 10 to Rs. 8 per unit. |
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Answer» Solution :In the given EXAMPLE FIRST we will calculate Price Elasticity of Good Y `{:("Original Quantity (Q) = 400 units","% Change in Price = 25%"),("New Quantity "(Q_(1))=300" units","Elasticity of Demand (ED) = ?"),("Change in Quantity "(Delta Q)=100" units",):}` Percentage in demand `=(Delta Q)/(Q)xx100=(-100)/(400)xx100=-25%` Price Elasticity of Demand (ED) `=("% Change in quantity demanded")/("% Change in price")=(-25%)/(25%)` Price Elasticity of Demand (ED) `=(-)1` Now, Price Elasticity of Good X `=(-)0.5` (as elasticity of demand of good X is half the price elasticity of demand of Good Y). Let us now calculate % RISE in Demand for X `{:("Original Price (P) = Rs. 10","% Rise in Quantity = ?"),("New Price "(P_(1))= Rs. 8,"Elasticity of Demand (ED) "=(-)0.5),("Change in Price "(Delta P)=-Rs. 2,):}` Percentage change in Price `=(Delta P)/(P)xx100=(-2)/(10)xx100=-20%` `(-)0.5=("% Change in quantity demanded")/(-20)` Percentae rise in demand for X = 10% Demand for Good X will rise by 10% |
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