Question

Supposing the initial demand was $100$ units. With the rise in price by $Rs.5$, the quantity demanded decreases by $5$ units. Elasticity of demand is $1.2$. Find out the price before the change in demand.

Answer 1

Supposing the price $\left(P\right)$ before change in demand $=Rs.X$.
Price elasticity of demand $\left(E_d\right)=(-)\frac{P}{Q}\times \frac{△Q}{△P}$
Here, $△P=Rs.5;△Q=(-)5units$
$P=Rs.X;Q=100units$ and $E_d=1.2$
Price elasticity of demand $\left(E_d\right)=(-)\frac{P}{Q}\times \frac{△Q}{△P}=1.2$
Or, $(-)\frac{X}{100}\times \frac{-5}{5}=1.2$
Or, $\frac{X}{100}=1.2$
Or, $X=1.2\times 100=120$
Price before change in demand $=Rs.120$.