question_answer

Price elasticity of demand of a good is \[\mathbf{0}.\mathbf{75}\]. Calculate the percentage fall in its price that will result in 15 per cent rise in its demand.                                                                                                    [4]

Answer:

Elasticity of demand \[=\frac{\text{Percentage}\,\,\text{change}\,\,\text{in}\,\text{quantity}\,\,\text{demanded}}{\text{Percentage}\,\,\text{change}\,\,\text{in}\,\,\text{price}}\]

or         \[-\,0.75=\frac{15}{x}\]  ?. [Let x be the percentage change in price]

or         \[-\,0.75\,x=15x=\frac{100}{-\,0.75}x=-20\]

Price will fall by 20%