Question

Demand function x, for a certain commodity is given as x = 200 - 4p where p is the unit price. Find :
(a) elasticity of demand as function of p.
(b) elasticity of demand when p = 10 , interpret your result.

Answer 1

(a) Elasticity of demand

η = `(-p)/x (dx)/(dp)`

For x = 200 - 4p

`dx/(dp) = -4`

`η = (-p)/x (dx)/(dp)`

`= (-p)/(200 - 4p)(-4)`      (for p < 50)

`η = p/(50 - p)`

(b) When p = 10

`η = 10/(50 - 10)`

 =`10/40` 

= 0.25 < 1

∴ Demand is inelastic for p = 10