Question

Consider the demand for a good. At price Rs 4, the demand for the good is 25 units.

Suppose price of the good increases to Rs 5, and as a result, the demand for the good

falls to 20 units. Calculate the price elasticity?

Answer 1

Price elasticity of demand $(E_d)$ $=(-) \frac {P} {Q} ×\frac {\Delta Q} {\Delta P}$

Given, P=Rs.4;P₁=Rs.5

$\Delta P=P_1-P=Rs.5-Rs.4=Rs.1$

Q=25 units ;Q₁ =20units

$\Delta Q=Q_1-Q=(20-25)units =(-) 5units$

$E_d=(-) \frac {4}{25}×\frac {-5}{1}$

$=0.8$