Question

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.

Answer 1

$Price elasticity o demand = \frac{percentage change in demand}{ percentage change in price}$

Change in demand = D₂ - D₁ = 35,000- 25,000 = 10,000

Mid point = $\frac{25000+35000}{2} = 30,000$

percentage change in demand = $\frac{10000}{30000} \times100= 33\frac{1}{3}$

change in price = P₂ - P₁ = 350 - 450 = -100

Mid point = $\frac{350 + 450}{2} = 400$

percentage change in price = $\frac{-100}{400} \times100 = -25$

So,

Price elasticity of demand = $\frac{33.33}{25} = - 1\frac{1}{3}$