Question

When the price of a good falls by 10 per cent, its quantity demanded rises from 40 units to 50 units. Calculate the price elasticity by percentage method.

Answer 1

% Change in Price = − 10%

Initial Quantity (Q) = 40 units

New Quantity (Q₁) = 50 units

Calculate the absolute change in quantity:

ΔQ = New Quantity − Initial Quantity

= 50 − 40

= 10 units

Calculate the percentage change:

% Change in Quantity Demanded = `(ΔQ)/Q xx 100`

= `10/40 xx 100`

= 25%

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

= `(25%)/(10%)`

= 2.5

The price elasticity of demand is 2.5.