Answer to Question #144610 in Economics of Enterprise for rahul

Question #144610
A business firms sells a good at the price of Rs 450.The firm has decided to reduce the price of good to Rs 350.Consequently, the quantity demanded for the good rose from 25,000 units to 35,000 units. Calculate the price elasticity of demand.
1
Expert's answer
2020-11-17T07:17:23-0500

P1 = 450

P2 = 350

Q1 = 25000

Q2 = 35000

Percentage change in quantity "= \\frac{Q_2 \u2013 Q_1}{Q_1} \\times 100"

"= \\frac{35000 \u2013 25000}{25000} \\times 100"

"= \\frac{10000}{25000} \\times 100 = 40" %

Percentage change in price "= \\frac{P_2 \u2013 P_1}{P_1}\\times 100"

"= \\frac{350 \u2013 450}{450}\\times 100"

"= \\frac{-100}{450}\\times 100 = -22.22" %

Price elasticity of demand "= \\frac{Percentage \\;change\\; in \\;quantity}{Percentage \\;change \\;in\\; price}"

"= \\frac{40}{-22.22} = -1.8"

The price elasticity of demand is -1.8. The negative sign shows an inverse relationship between price and quantity demanded.


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