If the price of X is ₹ 2 and the elasticity of demand is 0.4 , how much will a 10 percent reduction in quantity demanded increase the price ? If the new quantity demanded is 9 units, will the total spending on X rise ? If so, by what percentage ?

Explanation

Calculation of Percentage rise in price

Price Elasticity of Demand `(E_(d))= ("Percentage Change in Quantity Demanded")/("Percentage Change in price")`
`(-) 0.4 =(-10)/("percentage Change in Price ")`
Percentage rise in price = 25 %
Calculation of New price : price has increased by 25%
New price = 2+ 25% of 2=2+ 0.50 = ₹2.50
Calculation of Original Demand: Demand has decreased by 10%
Let the Original dmean be x.
We know: Original Demand - fall in Demand = New Demand
x-10% of x = 9 units
or, `x-(10x)/(100) = 9` units
or , 90x = 900 units
x or Original Demand = 10units

Yes , total spending on X rises by ₹ 2.50. The percentage increase in total spending = `(2.5)/20xx 100 = 12.5%`