The Percentage change in demand is three times the percentage change in price. If original demand was 30 units at the price of ₹ 7 per unit, then calculate the price elasticity of demand, given price increased by 10% . Indicate whether the demand is elastic or not. Also calculate the new quantity demanded.

Answer

Price Elastictiy of demand `(E_(d)) = (-)3;` Demand is highly elastic as `E_(d) gt1 ; ` New Quantity =21 units

Explanation

Given: percentage change in demand = 3times of percentage change in price
i.e % change (fall) in demand = `3 xx 10 = -30 % ` (as price has increased by 10 %)
Price Elasticity of Demand `(E_(d))= ("percentage change in Quantity Demand ")/("Percentage Change in price")`
price Elasticirty of Demand `(E_(d))=(-30)/10 = (-) 3`
As price is increasing , the quantity demanded will fall. it maeans,
New Quantity = Original Quantity (Q) -% fall in demand
= 30 - 30 % of 30 -30 -9 =21 units