Question

The price of a commodity falls from ₹ 50 to ₹ 30, resulting in an increase in the purchase of the commodity from 200 units to 220 units. Calculate the price elasticity of demand.

Answer 1

Initial Price (P₁) = ₹ 50

New Price (P₂) = ₹ 30

Initial Quantity (Q₁) = 200 units

New Quantity (Q₂) = 220 units

% change in quantity = `(Q_2-Q_1)/Q_1xx100`

= `(220-200)/200xx100`

= `20/200xx100`

= 10%

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

= `(30-50)/50xx100`

= `-20/50xx100` 

= −40%

Price elasticity of demand = `(10%)/(-40%)`

= −0.25

(Since elasticity is typically considered in absolute terms)

= 0.25