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The price of commodity is Rs. 15 per unit and its quantity demanded is 500 units. Its quantity demanded rises by 80 units as a result of fall in its price by 20 per cent. Calculate its price elasticity of demand. Is its demand inelastic ? Give reason for your answer. |
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Answer» Solution :`{:("Original Quantity (Q) = 500 units"," % Change in Price "=-20%),("Change in Quantity "(Delta Q)=80" units"," ELASTICITY of Demand (ED) = ?"),("New Quantity "(Q_(1))=580" units",):}` Percentage change in demand `=(Delta Q)/(Q)xx100=(80)/(500)xx100=16%` Price Elasticity of Demand (ED) `=("% Change in quantity demanded")/("% Change in price")=(16%)/(-20%)` Price Elasticity of Demand (ED) `=(-)0.8` `ED=(-)0.8`, Demand is less elastic because `ED lt 1`. |
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