Question

The demand for a commodity at ₹ 4 per unit is 100 units. The price of the commodity rises and, as a result, the demand falls to 75 units. Find the new price of the price elasticity of demand of the commodity is 1.

Answer 1

Initial Price P₁ = ₹ 4

Initial Quantity Q₁ = 100

New Quantity Q₂ = 75

Price Elasticity of Demand e_P = 1

e_P = `"% change in quantity"/"% change in price"`

% change in quantity = `(Q_2 - Q_1)/Q_1 xx 100`

= `(75 - 100)/100 xx 100`

= −25%

1 = `-25/"% change in price"`

% change in price = −25%

P₂ = `P_1 + (25/100 xx P_1)` 

= `4 + (25/100 xx 4)`

= 4 + 1

= ₹ 5