Question

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

Answer 1

Given, percentage change in quantity demanded $=(-)20\%$
$P=Rs.10;P_1=Rs.12;△P=P_1-P=Rs.12-Rs.10=Rs.2$
$=\frac{2}{10}\times 100=20\%$
Price elasticity of demand $\left(E_d\right)=(-)\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$
$=(-)\frac{-20\%}{20\%}=1$
If the price rises from $Rs.10$ per unit to $Rs.13$ per unit.
$E_d=1$
$P=Rs.10;P_1=Rs.13;△P=P_1-P=Rs.13-Rs.10=Rs.3$
Percentage change in price $=\frac{△P}{P}\times 100$
$=\frac{3}{10}\times 100$
$=30\%$
Price elasticity of demand $\left(E_d\right)=(-)\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$
$1=(-)\frac{\text{Percentage change in quantity demanded}}{30\%}$
Percentage change in quantity demanded $=(-)30\%$
Price elasticity of demand $=1$.
Percentage fall in quantity demanded $=30\%$.