Question

The price of a commodity goes up from ₹ 5 to ₹ 6 as a result of which, demand falls from 10 units to 8 units. Calculate the price elasticity of demand.

Answer 1

Initial Price (P) = ₹ 5

New Price (P₁) = ₹ 6

Change in Price (ΔP) = 6 − 1 = 1

Initial Quantity Demanded (Q) = 10 units

New Quantity Demanded (Q₁) = 8 units

Change in Quantity Demanded (ΔQ) = 10 − 8 = 2 units

Ed = `(ΔQ)/(ΔP) xx P/Q`

= `2/1 xx 5/10`

= `2 xx 5/10`

= `10/10`

= 1

The price elasticity of demand is 1.