Question

Elasticity of demand for Good X is half of elasticity of demand for Good Y. Quantity demand for
Good Y falls by 15 percent when its price rises by Rs.5 per unit from Rs. 10 per unit. Calculate
percentage change in demand for Good X if its price falls by 50 percent.

Answer 1

$Edy = \frac{\Delta Dy} {\Delta Py} = \frac{15} {50} = 0.3$

$Edx = 0.5(Edy) = 0.5 (0.3) = 0.15$

$Edx = \frac{\Delta Dx} {\Delta Px}$

$0.15 = \frac{\Delta Dx} {50}$

$\Delta Dx = 0.15(50) = 7.5$

Therefore, the demand for Good X changes by 7.5 percent if its price falls by 50 percent