question_answer

When the price of a commodity falls by 20 per cent, its demand rises from 400 units to 500 units. Calculate its price elasticity of demand.

Answer:

\[Ed=\frac{\text{ }\!\!%\!\!\text{ }\,\,\text{change}\,\,\text{in}\,\,\text{quantity}\,\,\text{Demanded}}{\text{ }\!\!%\!\!\text{ }\,\,\text{change}\,\,\text{in}\,\,\text{price}}\]

\[%\,\,\text{change}\,\,\text{in}\,\,\text{quantity}\,\,\text{Demanded}\,=\,\frac{{{Q}_{2}}-Q}{{{Q}_{1}}}\,\,\times \,\,100\]

\[=\frac{500-400}{400}\,\,\times \,\,100\]

= 25%

\[Ed=\frac{25}{-20}=1.25\]