Question

The price of a commodity goes up from ₹ 4 to ₹ 5, as a result of which, demand falls from 12 units to 10 units. Calculate the price elasticity of demand.

Answer 1

Initial Price (P) = ₹ 4

New Price (P₁) = ₹ 5

Change in Price (ΔP) = 5 − 4 = 1

Initial Quantity Demanded (Q) = 12 units

New Quantity Demanded (Q₁) = 10 units

Change in Quantity Demanded (ΔQ) = 12 − 10 = 2 units

E_d = `(ΔQ)/(ΔP) xx P/Q`

= `2/1 xx 4/12`

= `2 xx 1/3`

= `2/3`

= 0.67