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When the price of a commodity is Rs. 20 per unit, its quantity demanded is 800 units. When its price rises by Rs. 5 per unit, its quantity demanded falls by 20 per cent. Calculate its price elasticity of demand. Is its demand elastic ? Give reason for your answer. |
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Answer» Solution :`{:("ORIGINAL Quantity (Q) = 800 units"," % Change in Price "=20%),("% Change in Quantity "=-20%,"Change in Price "(DELTA P) =Rs. 5),("Elasticity of Demand (ED) = ?","NEW Price "=Rs. 25):}` Percentage change in Price `=(Delta P)/(P)xx100=(5)/(20)xx100=25%` 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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