A consumer buys 50 units of a commodity at Rs 4 per unit. When its price falls by 25%, its demand rises to 100 units. Find out price elasticity of demand.

-4

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Solution

The correct option is C 4
Initial Price $(P_{0}) = R s .4$
Fall in price by $25 % = 4 \times \frac{25}{100} = R s .1$
New price $(P_{1}) = R s .4 - R s .1 = R s .3$
Initial Quantity $(Q_{0}) = 50$ units
New Quantity $(Q_{1}) = 100$ units
Change in Quantity $= Q_{1} - Q_{0}$
$= 100 - 50$
$= 50$ units
Elasticity of Demand $= - \frac{P}{Q} \times \frac{C h a n g e i n q u a n t i t y}{C h a n g e i n p r i c e}$
$= - \frac{4}{50} \times \frac{50}{- 1} = 4$

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A consumer buys 50 units of a commodity at Rs 4 per unit. When its price falls by 25%, its demand rises to 100 units. Find out price elasticity of demand.

The correct option is C 4Initial Price (P0)=Rs.4Fall in price by 25%=4×25100=Rs.1New price (P1)=Rs.4−Rs.1=Rs.3Initial Quantity (Q0)=50 unitsNew Quantity (Q1)=100 unitsChange in Quantity =Q1−Q0 =100−50 =50 unitsElasticity of Demand =−PQ×ChangeinquantityChangeinprice =−450×50−1=4