Question

When price of good falls from $Rs.15$ per unit to $Rs.12$ per unit, its demand rises by $25$ per cent. Calculate price elasticity of demand.

Answer 1

Given, $P=Rs.15;P_1=Rs.12;△P=P_1-P=Rs.12-Rs.15=(-)Rs.3$
Percentage change in price $=\frac{△P}{P}\times 100=\frac{-3}{15}\times 100=(-)20\%$
Percentage change in quantity demanded $=25\%$
Price elasticity of demand $\left(E_d\right)=(-)\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$
$=(-)\frac{25\%}{(-)20\%}$
$=1.25$
Price elasticity of demand $=1.25$.