Consider the demand for a good. At price Rs. 4, the demand for the good is 25 units. Suppose price of good increases to Rs. 5 and as a result, the demand for the goods falls to 20 units. Calculate the price elasticity.

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Solution

$P_{0} = 4$ , $Q_{0} = 25$

$P_{1} = 5$ , $Q_{1} = 20$

$Δ P = 1, Δ Q = - 5$

$E_{d} = - (\frac{Δ Q}{Δ P} \times \frac{P_{0}}{Q_{0}})$

$= \frac{5}{1} \times \frac{4}{25} = 0.8$

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Consider the demand for a good. At price Rs. 4, the demand for the good is 25 units. Suppose price of good increases to Rs. 5 and as a result, the demand for the goods falls to 20 units. Calculate the price elasticity.

P0=4, Q0=25 P1=5, Q1=20 ΔP=1, ΔQ=−5 Ed=−(ΔQΔP×P0Q0) =51×425=0.8

$P_{0} = 4$ , $Q_{0} = 25$

$P_{1} = 5$ , $Q_{1} = 20$

$Δ P = 1, Δ Q = - 5$

$E_{d} = - (\frac{Δ Q}{Δ P} \times \frac{P_{0}}{Q_{0}})$

$= \frac{5}{1} \times \frac{4}{25} = 0.8$