Question

The price elasticity of demand is estimated to be $2$. The price of the commodity happens to increase by $10\%$. Find the change in quantity demanded when initially he was buying $120$ units of the commodity.

Answer 1

Percentage change in price $=10\%$.

This implies that,

$\frac{△P}{P}=0.1;Q=120;E_d=2$

We know,
Price elasticity of demand,

$E_d=(-)\frac{△Q}{Q}\times \frac{P}{△P}$
$2=(-)\frac{△Q}{120}\times \frac{1}{0.1}$

$2=(-)\frac{△Q}{12}$

$△Q=-24$

Hence, the change in quantity demanded is equal to $-24$ here negative sign implies that there is a decrease in the quantity demanded.