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When price of a good falls from Rs. 5 to Rs. 3 per unit, its demand rises by 40%. Calculate its price elasticity of demand. |
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Answer» Solution :`{:("Original PRICE (P) = RS. 5","% Change in Quantity = 40%"),("New Price (P1) = Rs. 3","ELASTICITY of Demand (ED) = ?"),("Change in Price "(DELTA P)=-Rs. 2,):}` Percentage change in Price `=(Delta P)/(P)xx100=(-2)/(5)xx100=-40%` Price Elasticity of Demand (ED) `=("% Change in quantity demanded")/("% Change in price")=(40%)/(-40%)` Price Elasticity of Demand (ED) `=(-)1` ED `=(-)1`, Demand is unitary elastic. |
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