When the price of a commodity is ₹ 20 per unit, its quantity demanded units. When its price rises by ₹ 5 per unit, its quantity demanded falls by 20 per cent. Calculate its price elasticity of demand. Is its demand elastic? Give reasons for answer.

Answer

`E_(d)`= (-) 0.8(Demand is unitary elastic `E_(d)lt 1)`
Negative sign of `E_(d)` indicates relationship between price and quantity demanded.

Explanation

Percentage change in price = `(DeltaP)/P xx 100 =-5/20 x100 = 25% `
Price Elasticity of Demand `(E_(d)) = (" Percentage change in Quantity demanded")/("percantage change in price") =(20%)/(25%)`
Priece Elasticirty of Demand `(E_(d)) = (-) 0.8`