Answer to Question #154453 in Microeconomics for sharadha

Question

suppose the price of Good is 1 rupee and price elasticity of demand is 0.2, how much will 10% reduction in quantity demanded increase the price? what will be the new price?

Answer 1

Price Elasticity of Demand (E_d) = Percentage Change in Quantity Demanded / Percentage Change in Price

(-)0.2 = -10 / Percentage Change in Price

Percentage Change in Price = -10 / -0.2 = 50%

Calculation of New Price: price has increased by 50%

New Price = 1 + 50% of 1 = 1 + 0.50 = 1.50 rupee