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Question
Answer the following question.
If the price of a commodity rises by 40% and its quantity demanded falls from150 units to 120 units, calculate the coefficient of price elasticity of demand for the commodity.
Solution
Given :
Q1 = 150
Q2 = 120
Price rises by 40%
`"Elasticity of demand" = "Percentage change in Quantity Demanded"/"Percentage change in Price"`
`"Percentage change in Quantity demand" = ("Q"_2-"Q"_1)/"Q"_1 xx 100`
= `(150-120)/(150) xx 100 = 20%`
`"Elasticity of demand" = "Percentage change in Quantity Demanded"/"Percentage change in Price"`
= `(20)/(40) = 0.5`
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