Question

Due to 10% fall in price of a commodity, its quantity demanded rises from 400 units to 450 units. Calculate its price elasticity of demand.

Answer 1

% Change in Price = −10%

Initial Quantity (Q) = 400 units

New Quantity (Q₁) = 450 units

Calculate the absolute change in quantity:

ΔQ = New Quantity − Initial Quantity

= 450 − 400

= 50 units

% Change in Quantity Demanded = `(ΔQ)/Q xx 100`

= `50/400 xx 100`

= 12.5%

Ed = `("% Change in Quantity Demanded")/("% Change in Price")`

= `(12.5%)/(10%)`

= 1.25