Question

When the price of a good rises from Rs. 10 per unit to Rs. 12 per unit, its quantity demanded falls by 20 percent. Calculate its price elasticity of demand. How much be the percentage change in its quantity demanded, if the price rises from Rs.10 per unit to Rs. 13 pe unit?

Answer 1

We are given,
Percentage fall in demand $=20$
Initial Price $=10$
New Price $=12$
$\%$ Increase in Price $=\frac{2}{10}\times 100=20\%$
We know,
$e_d=-\frac{\%\text{change in Demand}}{\%\text{change in price}}=-\frac{20}{20}=-1$
Now, if price rises from 10 to 13
$\%$ Change in price $-\frac{3}{10}\times 100=30\%$
So,
$\%$ Change in Demand $=\%$ change in Price $\times e_d=30\times -1=-30$
So, we can say that if the price rises from Rs. 10 to Rs. 13, i.e by 30%, then the demand will fall by 30%. This is because the good follows unitary elasticity.