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When price is Rs. 20 per unit, demand for a commodity is 500 units. As the price falls to Rs. 15 per unit, demand expands to 800 units. Calculate elasticity of demand. |
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Answer» Solution :`{:("ORIGINAL Quantity (Q) = 500 unitsOriginal Price (P) = Rs. 20"),("New Quantity "(Q_(1))=800 "unitsNew Price "(P_(1))=Rs. 15),("Change in Quantity "(Delta Q)=300 "unitChange in Price "(Delta P)=-Rs. 5),("Elasticity of Demand (ED) " = ?):}` Price Elasticity of demand `(ED)=(Delta Q)/(Delta P)xx(P)/(Q)=(300)/(-5)xx(20)/(500)=(-)2.4` `ED=(-)2.4` (Demand is HIGHLY elastic as `ED GT 1`) Negative sign of ED indicates the INVERSE relationship between price and quantity demanded. |
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