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Question
Demand function x, for a certain commodity is given as x = 200 - 4p where p is the unit price. Find :
(a) elasticity of demand as function of p.
(b) elasticity of demand when p = 10 , interpret your result.
Solution
(a) Elasticity of demand
η = `(-p)/x (dx)/(dp)`
For x = 200 - 4p
`dx/(dp) = -4`
`η = (-p)/x (dx)/(dp)`
`= (-p)/(200 - 4p)(-4)` (for p < 50)
`η = p/(50 - p)`
(b) When p = 10
`η = 10/(50 - 10)`
=`10/40`
= 0.25 < 1
∴ Demand is inelastic for p = 10
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