Answer to Question #262905 in Economics of Enterprise for Nitin

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

Here,P=Rs.4; P$_{1}$ ​=Rs.5;

Q=25units ;Q$_{1}$ =20 units

Price elasticity of demand ($E_{d}$ )=(-)$\frac{P}{Q}\times\frac{\delta Q}{\delta P}$

$\frac{\delta Q}{\delta P}=\frac{20-25}{5-4}=\frac{-5}{1}$

$(E_{d}​ )=(-)\frac{4}{25}\times\frac{-5}{1}=0.8$