Consider the demand for a good. At price Rs. 4, the demand for the good is 25 units. Suppose price of the good increases to Rs. 5, and as a result, the demand for the good falls to 20 units. Calculate the price elasticity ?

Explanation

`{:("Original Quantity Original Price"),("(Q) = 25 units (P) = Rs. 4"),("Fall in Quantity Rise in Price"),((Delta Q)=-5" units (DP) = Rs. 1"),("New Quantity New Price "(P_(1))),((Q_(1))=20 "units "=Rs. 5),(" Elasticity of Demand (ED) " = ?):}`
Price Elasticity of demand (ED)
`=(Delta Q)/(Delta P)xx(P)/(Q)=(-5)/(1)xx(4)/(25)=(-)0.8`
`ED=(-)0.8` (Demand is less elastic as `ED lt 1`)
Negative sign indicates the inverse relationship between price and quantity demanded.