Question

the quantity demanded of a commodity at a price Rs 8 per unit is 600 units . Its price falls by 25% and quantity demanded by 120 units . calculate its price elasticity of demand . is its demand elastic ? give reason for your answer .

Answer 1

$$\begin{gathered} \mathrm{Given}:{ \\ }_{Q_0=600\mathrm{units}}{ \\ }_{△Q=120\mathrm{units}} \\ \mathrm{Percentage}\mathrm{change}\mathrm{in}\mathrm{price}=25 \\ \mathrm{Percentage}\mathrm{change}\mathrm{in}\mathrm{demand}=\frac{\mathrm{Change}\mathrm{in}\mathrm{Demand}}{\mathrm{Initial}\mathrm{Demand}}\times 100 \\ =\frac{120}{600}\times 100 \\ =20\% \\ \mathrm{Now},\mathrm{as}\mathrm{per}\mathrm{percentage}\mathrm{method}, \\ {}_{E_d=\frac{\mathrm{Percentage}\mathrm{change}\mathrm{in}\mathrm{demand}}{\mathrm{Percentage}\mathrm{change}\mathrm{in}\mathrm{price}}} \\ =\frac{20}{25} \\ =0.8 \end{gathered}$$
Thus, elasticity of demand is inelastic.