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Question
The coefficient of price elasticity of demand for Good X is (−) 0.2. If there is a 5% increase in the price of the good, by what percentage will the quantity demanded for the good fall?
Solution
Given:
Price Elasticity of demand for Good X (Ed)= (-) 0.2
Increase in the price of the good = 5%
`"E"_"d" = (% "change in quantity demanded")/(% "change in price") = (% "change in quantity demanded")/(5%)`
(-) 0.2 = `(% "change in quantity demanded")/(5%)`
% fall in quantity demanded = 1 percent
So, % fall in quantity demanded = 1 percent.
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