Question

The price of a good falls from ₹ 8 to ₹ 6. As a result, its demand rises from 100 units to 125 units. Find out the elasticity of demand by the percentage method.

Answer 1

Initial Price (P) = ₹ 8

New Price (P₁) = ₹ 6

Initial Quantity Demanded (Q) = 100 units

New Quantity Demanded (Q₁) = 125 units

Percentage Change in Quantity Demanded:

%ΔQ = `("New Quantity" - "Initial Quantity")/("Initial Quantity") xx 100`

= `(125-100)/100 xx 100`

= `25/100 xx 100`

= 25%

Percentage Change in Price:

%ΔP = `("New price" - "Initial Price")/("Initial Price") xx 100`

= `(6 - 8)/8 xx 100`

= `(-2)/8 xx 100`

= −25%

E_d = `("Percentage Change in Quantity Demanded")/("Percentage Change in Price")`

= `(25%)/(25%)`

= 1