Price of the commodity increses from Rs 50 to Rs 60 per unit. Quantity...
Price and Quantity Relationship
The price of a commodity and the quantity demanded have an inverse relationship. As the price of a commodity increases, the quantity demanded usually decreases, and vice versa. This relationship is described by the law of demand.
Elasticity of Demand
Elasticity of demand measures the responsiveness of quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Elasticity of demand can be elastic, inelastic, or unitary, depending on the magnitude of the percentage change in quantity demanded.
Unitary Elasticity
Unitary elasticity of demand occurs when the percentage change in quantity demanded is equal to the percentage change in price. In other words, the change in quantity demanded exactly matches the change in price, resulting in a constant elasticity of demand.
Calculating the New Quantity Demanded
To establish unitary elasticity of demand, we need to find the new quantity demanded after the price increase from Rs 50 to Rs 60 per unit.
Step 1: Calculate the percentage change in price.
Percentage change in price = ((New price - Old price) / Old price) * 100
Percentage change in price = ((60 - 50) / 50) * 100
Percentage change in price = (10 / 50) * 100
Percentage change in price = 20%
Step 2: Determine the new quantity demanded.
Since the elasticity of demand is unitary, the percentage change in quantity demanded will also be 20%.
Step 3: Calculate the new quantity demanded.
Percentage change in quantity demanded = ((New quantity - Old quantity) / Old quantity) * 100
20% = ((New quantity - 200) / 200) * 100
0.2 = (New quantity - 200) / 200
New quantity - 200 = 0.2 * 200
New quantity - 200 = 40
New quantity = 240 units
Therefore, the new quantity demanded should be 240 units in order to establish unitary elasticity of demand.
Price of the commodity increses from Rs 50 to Rs 60 per unit. Quantity...
I think It is quite obvious that demand will decrease !
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