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Question

When the price of commodity A falls from Rs.10 to Rs.5 per unit, its quantity demanded doubles. Calculate its elasticity of demand. At what price will its quantity demanded fall by 50 per cent?

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Solution

Given, percentage change in quantity demanded =100%
P=Rs.10;P1=Rs.5;P=P1P=Rs.5Rs.10=()Rs.5
Percentage change in price =PP×100=510×100=()50%
Elasticity of demand (Ed)=Percentage change in quantity demandedPercentage change in price
=()100%50%=2
When quantity demanded falls by 50%.
Ed=2
Elasticity of demand (Ed)=Percentage change in quantity demandedPercentage change in price
2=()50%Percentage change in price
Percentage change in price =()50%2=25%
When price of the commodity rises by 25%, new price =Rs.10+Rs.2.5(25% of 10)=Rs.12.5
Elasticity of demand =2.
New price =Rs.12.5.

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