Question

A 5 per cent fall in the price of X leads to 10 per cent rise in demand for X. A 2 per cent rise in the price of Y leads to 6 per cent fall in demand for Y. Calculate the elasticity of demand of X and Y.

Answer 1

Calculation for Commodity X:

% Change in Demand = 10%

% Change in Price = 5%

E_d = `("% Change in Quantity Demand")/("% Change in Price")`

= `(10%)/(5%)`

= 2

Calculation for Commodity Y:

% Change in Demand = −6%

% Change in Price = 2%

E_d = `("% Change in Quantity Demand")/("% Change in Price")`

= `(6%)/(2%)`

= 3

The price elasticity of demand for Commodity X is 2.

The price elasticity of demand for Commodity Y is 3.