The demand of goods x and y have equal price elaeticy. The demand of x rises from from 100 units to 200 units due to 20 % fall in its price. Calculate % rise in demand of y, if its price falls by 8%.

Explanation

In the given example, first we will calculate Price Elasticity of Good X.
`{:("Original Quantity (Q) = Rs. 100 units","% Change in Price = -20%"),("New Quantity (Q_(1)) = 250 units","Elasticity of Demand (ED) = ?"),("Change in Quantity "(DQ)=150 " units",):}`
Percentage change in demand `=(Delta Q)/(Q)xx100=(150)/(100)xx100=150%`
Price Elasticity of Demand (ED) `=("% Change in quantity demanded")/("% Change in price")=(150%)/(-20%)`
Price Elasticity of Demand (ED) `=(-)7.5`
Now, Price Elasticity of Good `Y=(-)7.5` (as both X and Y have same price elasticity). Let us now calculate % Rise in Demand for good Y
% Rise in Demand = ? `" "` % Change in Price `=-8%`
Elasticity of Demand (ED) `=(-)7.5`
Price Elasticity of Demand (ED) `= ("% Change in quantity demanded")/("% Change in price")`
`(-)7.5=("% Change in quantity demanded")/(-8%)`
Percentage rise in demand = 60%
Demand for Good Y will rise by 60%