Calculate and comment on nature of price elasticity of demand, if, wit

1.	Calculate and comment on nature of price elasticity of demand, if, with a rise in price of Good X from Rs.10 to Rs.12, the quantity demanded falls by 40%.
Answer» Price elasticity of demand (Ed) = (percentage change in quantity demanded of the commodity)/(percentage change in price of the commodity) Percentage change in price = (12 - 1)/10 x 100 = 2/10 x 100 = 20% Percentage change in quantity demanded = 40% Price elasticity of demand (Ed) = (percentage change in quantity demanded of the commodity)/(percentage change in price of the commodity) = (40%)/(20%) = 2 (minus sign is ignored as it only represents the inverse relation between price and quantity demanded.) Ed = 2 (Ed > 1, Elastic demand)

Calculate and comment on nature of price elasticity of demand, if, with a rise in price of Good X from Rs.10 to Rs.12, the quantity demanded falls by 40%.

Answer»

Price elasticity of demand (Ed) = (percentage change in quantity demanded of the commodity)/(percentage change in price of the commodity)

Percentage change in price = (12 - 1)/10 x 100 = 2/10 x 100 = 20%

Percentage change in quantity demanded = 40%

Price elasticity of demand (Ed) = (percentage change in quantity demanded of the commodity)/(percentage change in price of the commodity)

= (40%)/(20%) = 2

(minus sign is ignored as it only represents the inverse relation between price and quantity demanded.)

Ed = 2 (Ed > 1, Elastic demand)

Discussion

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