Question

Consider the demands for a good,at the price Rs 4,the demand for the goods is 25units.suppose the price of the good is increases to Rs 5 and as a result,the demand of the good falls to 20units.calculate the price elastricity

Answer 1

The price elasticity of demand is computed as;

$(E d ​ ) =(-) \frac {P} {Q} ×\frac {\Delta Q} {\Delta P}$

Given, $P=Rs.4;P1=Rs.5$

$ΔP=P 1 ​ −P=Rs.5−Rs.4=Rs.1$

$Q=25\space units ;Q_{1} =20units$

$ΔQ=Q 1 ​ −Q=(20−25)\space units=(−)5\space units$

$E d ​ =(−)\frac {4}{25} ​ ×\frac { -5}{1}$

$=-0.8$

The minus value represents the inverted link between amounts sought and the cost of the item, and the flexibility of consumption less than 1 indicates that demand is less elastic.