Question

At a price of ₹ 4 per unit a consumer buys 50 units of a good. The price elasticity of demand is (−) 2. How many units will the consumer buy at a price of ₹ 3 per unit?

Answer 1

Initial Price (P₁) = ₹ 4

New Price (P₂) = ₹ 3

Initial Quantity (Q₁) = 50 units

Price Elasticity of Demand (e_p) = –2

% change in price = `(P_2 - P_1)/P_1xx100`

= `(3 - 4)/4xx100`

= `(-1)/4xx100`

= −25%

% change in quantity = −2 × (−25%) = 50%

New Quantity (Q₂) = Q₁ + 50% of Q₁

= `50 + ((50xx50)/100)`

= 50 + 25

= 75 units