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The quantity demanded of a commodity at a price of Rs. 8 per unit is 600 units. Its price falls by 25 per cent and the quantity demanded rises by 120 units. Calculate the price elasticity of demand. Is its demand elastic ? Give reason for your answer. |
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Answer» Solution :`{:("Original Quantity (Q) = 600 units","% Change in Price "=-25%),("Change in Quantity "(Delta Q)=120" units","ELASTICITY of Demand (ED) = ?"),("New Quantity "(Q_(1))=720" units",):}` Percentage change in demand `=(Delta Q)/(Q)xx100=(120)/(600)xx100=20%` Price Elasticity of Demand `(ED)=("% Change in quantity demanded")/("% Change in price")=(20%)/(-25%)` Price Elasticity of Demand `(ED)=(-)0.8` `ED=(-)0.8`, Demand is LESS ELASTIC because `ED LT 1`. |
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