When price is Rs. 20 per unit, demand for a commodity is 500 units. As the price falls to Rs. 15 per unit, demand expands to 800 units. Calculate elasticity of demand.

Explanation

`{:("Original Quantity (Q) = 500 units Original Price (P) = Rs. 20"),("New Quantity "(Q_(1))=800 "units New Price "(P_(1))=Rs. 15),("Change in Quantity "(Delta Q)=300 "unit Change in Price "(Delta P)=-Rs. 5),(" Elasticity of Demand (ED) " = ?):}`
Price Elasticity of demand `(ED)=(Delta Q)/(Delta P)xx(P)/(Q)=(300)/(-5)xx(20)/(500)=(-)2.4`
`ED=(-)2.4` (Demand is highly elastic as `ED gt 1`)
Negative sign of ED indicates the inverse relationship between price and quantity demanded.