Question

Calculate the quantity demanded of a commodity when the price increases from ₹ 4 to ₹ 6. The original quantity demanded was 40 units and the price elasticity of demand is 0.5.

Answer 1

Initial Price P₁ = ₹ 4 

New Price P₂ = ₹ 6 

Initial Quantity Q₁ = 40 units

Price Elasticity of Demand = 0.5

% change in price = `(P_2 - P_1)/P_1xx100`

= `(6-4)/4 xx 100`

= `2/4 xx 100`

= 50%

Price Elasticity of Demand = `"% change in quantity​"/"% change in price"`

0.5 = `"% change in quantity​"/50`

% change in quantity = 0.5 × 50  

= 25%

Since the price increased, quantity demanded will decrease, so:

% change in quantity = −25%

New Quantity (Q₂) = `Q_1+((-25)/100xxQ_1)`

= `40-(25/100xx40)`

= 40 − 10

= 30 units