The demand for commodity 'A' rises by 20% due to fall in proce by ₹ 2 form the original price of ₹8.
(i) Calculate elasticity of demand by 'Percentage Method'.
(ii) Whether demand of 'A' is elastic or inelastic ? Give reason for your answer.
(iii) What will be the shape of demand curve of A ?
(iv) If new demand of Commodity 'A' is 84 units , then calculate its original demand.

Explanation

Percentage Change in Price= ` (DeltaP)/(P) xx 100 = (-2)/8 xx 100 = -25 %`
`E_(d) = ("Percentage Change in Quantity Demanded")/("Percentage Change in price")=(20%)/(-25%)= (-) 0.8or0.8`
It must be noted that ` E_(d)` is always a negative number due to inverse relationship between price and quantity demanded. So,negative sign is always implied So, in the given case, `E_(d)` can be written as (-) 0.8 or 0.8.
(ii) Demand of 'A' is inelastic as elasticityof demand (0.8) is less than 1.
(iii) The demand curveof 'A' will be a Downward sloping steeper Curve. lt will be downward sloping due to inverse relationship between price and quantity demanded. it will be a steeper curve as demand is inelastic.
(iv) let the Original demand be x. we know: Original Demand + Rise in Demand = New Demand
x + 20% of x = 84 units
or, `x+ (20 x)/(100) =84 units` or, 120x = 8,400 units
x or Original Demand = 70 units