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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


Solution

(a) If price elasticity of demand (Ed) is zero, it implies that demand for the good remains constant regardless of change in price. 

(b) When price elasticity of demand (Ed) 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 (Ed) is -2, 10 per cent rise in price of a goods causes a fall in its demand by 20 units. 

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