Question

What will be the effect of 10 per cent rise in price of a good on its demand if price elasticity of demand is

(a) Zero

(b) -1

(c) -2

Answer 1

(a) If price elasticity of demand $\left(E_d\right)$ is zero, it implies that demand for the good remains constant regardless of change in price.

(b) When price elasticity of demand $\left(E_d\right)$ is -1, 10 per cent rise in price of a goods causes a fall in its demand by 10 units.

(c) When price elasticity of demand $\left(E_d\right)$ is -2, 10 per cent rise in price of a goods causes a fall in its demand by 20 units.