Price elasticity of demand of a good is (-)2. The consumer buys a certain quantity of this good at a price of Rs. 8 per unit . When the price falls he buys 50 percent more quantity . What is the new price ?
`E_(P)=(% "change in " Q_(d))/(% " change in P")`
`(-)2=(50%)/(% " change in P")`
`%` Change in P `=(50)/(-2)=-25%`
New `P=P+%` change in P
`=8+(-25% " change of " 8) =8-2=Rs.6` per unit.
`E_(P)=(% "change in " Q_(d))/(% " change in P")`
`(-)1 =(% " change in " Q_(d))/(-10%)`
`:.% "change in " Q_(d)=+10%`.
Demand after price falls `=Q+10% " of " Q=60+...
`{:(" Price"," Demand"),(" " 7," "12),(" "6," "(72)/(6)=12):}`
`E_(P)=(P)/(Q)xx(DeltaQ)/(DeltaP)`
`=(7)/(12)xx(0)/(-1)=0`
The demand curve is parallel to the y- axis.
Percent change in price `=(-1)/(10)xx100=-10%`
Percent change in supply =-20%
`E_(s) =("Percentage change in supply")/("Percentage change in price")=(-20)/(-10)=2`