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Question

Price of commodity - X falls from Rs.5 per kg to Rs.4 per kg and the demand of consumer A for its rises from 4 kg to 6 kg. Express you opinion regarding the nature of elasticity of demand of commodity - X.

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Solution

Ed=()PQ×QP
Here, P=Rs.5;P1=Rs.4P=P1P=Rs.4Rs.5=()Rs.1
Q=4 kg;Q1=6 kgQ=Q1Q=(64)kg=2 kg
Price elasticity of demand (Ed)=()54×21=104
=2.5 (greater than unity)
Elasticity of demand is greater than unity.

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