Question

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

Answer 1

Price elasticity of demand $\left(E_d\right)=(-)\frac{P}{Q}\times \frac{△Q}{△P}$
Here,$P=Rs.4$; $P_1=Rs.5;$

$△P=P_1-P$=$Rs.5-Rs.4=Rs.1$

$Q=25$ units ; $Q_1$ = $20$ units ; $

$△Q=Q_1-Q$=$(20-25)$ units = $(-)5$ units
$E_d=(-)\frac{4}{25}\times \frac{-5}{1}$
$=\mathrm{0.8.}$