When price of a good rises from $R s .20$ per unit to $R s . 23$ per unit, its demand falls by $30$ per cent.Calculate price elasticity of demand.

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Solution

Given, $P = R s . 20$ ; $P_{1} = R s . 23;$
$△ P = P_{1} - P = R s . 23 - R s . 20 = R s . 3$
Percentage change in price = $\frac{△ P}{P} \times 100 = \frac{3}{20} \times = 15$ per cent
Percentage change in quantity demanded $= (-) 30$ per cent
Price elasticity of demand $(E_{d}) = (-) \frac{P e r c e n t a g e c h a n g e i n q u a n t i t y d e m a n d e d}{P e r c e n t a g e c h a n g e i n p r i c e}$
= $(-) \frac{- 30 %}{15 %}$ = $2$
Price elasticty of demand = $2.$

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