Question

The price per kilogram of a commodity falls from ₹ 6.00 to ₹ 5.00 and the quantity demanded increases from 150 quintals to 200 quintals. Is demand elastic? Give reasons for your answer.

Answer 1

Initial Price (P) = ₹ 6.00

New Price (P₁) = ₹ 5.00

Initial Quantity Demanded (Q) = 150 quintals

New Quantity Demanded (Q₁) = 200 quintals

Change in Price (ΔP) = 5.00 − 6.00 = −1.00

Change in Quantity Demanded (ΔQ) = 200 − 150 = 50

Ed = `(ΔQ)/(ΔP) xx P/Q`

= `50/(-1.00) xx 6.00/150`

= `300/(-150)`

= −2

Yes, the demand is elastic.

Reason:

1. Coefficient Value (Ed > 1): Ignoring the negative sign (which simply represents the inverse relationship between price and demand), the coefficient has an absolute value of 2. Since 2 > 1, it indicates highly elastic demand.
2. Proportionate Change: The percentage increase in quantity demanded far exceeds the percentage decrease in price.
   • The price fell by 16.67% `(1/6 xx 100)`.
   • The quantity demanded rose by 33.33% `(50/150 xx 100)`
   • Because the demand response (33.33%) is double the price change (16.67%), the commodity is highly price-sensitive.