Question

What will be the effect of 10 percent rise in price of a good on its demand if price elasticity of demand is (a) Zero, (b)-1, (c)-2.

Answer 1

(a) Given that

E_d = 0,Percentage change in price = 10

`E_d="Percentage change in quanitity demanded"/"Percentage change in price"`

`0="Percentage change in quanitity demanded"/10`

Therefore, Percentage change in quanitity demanded = 0

 

(b) Given that

E_d = -1, Percentage changeinprice=10

`E_d="Percentage change in quanitity demanded"/"Percentage change in price"`

`-1="Percentage change in quanitity demanded"/10`

Therefore,Percentagechangein quanitity demanded = -10

 

(C) Given that

E_d = -2, Percentage change in price = 10

`E_d="Percentage change in quanitity demanded"/"Percentage change in price"`

`-2="Percentage change in quanitity demanded"/10`

Therefore, Percentage change in quanitity demanded = -20