The demand for goods X and Y have equal price elasticity. The demand of X rises from 100 units to 250 units due to a 20 per cent fall in its price. Calcualte the percentage rise in demand of Y, if its price falls by 8 per cent.

Answer

Demand for Good Y will rise by 60%

Explanation

In the given example , we will first calculate price Elasticity of Good X

Percentage change in demand =` (DeltaQ)/Qxx100 = 150/100 xx 100 = 150%`
Price Elasticity of Demand `(E_(d))= ("percentage change in Quantitydemanded ")/(" Percentage chnage in price")= (150%)/(-20%) `
price Elasticity of Demand `(E_(d)) = (-) 7.5`
Now , price Elasticity of Good Y= (-) 7.5 (as both X and Y have same price elasticity).
Let us now calculate % Rise in Demand for Y

price Elasticity of Demand `(E_(d)) = ("Percentage Change in Quantity Demanded")/("percentage change in price")`
`(-) 7.5 = ("Percentage change in Quantity Demanded")/(-8)`
Percentage rise in demand = 60%