Question

A 5 percent fall in the price of a good raises its demand from 300 units to 318 units. Calculate its price elasticity of demand.

 

Answer 1

Given, the initial quantity Q₁ = 300
New quantity Q₂ = 318
So, ΔQ = 310 - 300 = 18
Now, percentage fall in price =`(ΔP)/Pxx100` = (-)5%
We know,
`E_d=(-)((ΔQ)/Qxx100)/((ΔP)/Pxx100)=(-)(18/300xx100)/((-)5)=(-) 6/((-)5)=1.2`
Thus, price elasticity of demand is 1.2