The demand for a goods falls to 500 units in response to rise in price by Rs. 10. If the original demand was 600 units at the price of Rs. 30, calculate price elasticity of demand.

Explanation

`{:("New Quantity (Q_(1)) = 500 units Rise in Price (Delta P) = Rs. 10"),("Original Quantity "(Q)=600 "units Original Price "(P)=Rs. 30),("Change in Quantity "(Delta Q)=-100 "unit New Price "(P_(1))=-Rs. 40),(" Elasticity of Demand (ED) " = ?):}`
Price Elasticity of demand `(ED)=(Delta Q)/(Delta P)xx(P)/(Q)=(-100)/(10)xx(30)/(600)=(-)0.5`
`ED=-(-)0.5` (Demand is inelastic as `ED lt 1`)
Negative sign indicates the inverse relationship between price and quantity demanded.