A consumer buy 20 units of commodity at 10 p.u the price elasticity of...
In this question
P=10
Q=20
p1=10-2=2
Q1=?
Ped=-Q1/P1*P/Q
==>-1=-Q1/2*10/20
==>Q1=4
==>New quantity is initial quantity+ Q1 = 20+4=24
So answer is 24
A consumer buy 20 units of commodity at 10 p.u the price elasticity of...
Price Elasticity of Demand
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It indicates how sensitive consumers are to changes in price. The formula for price elasticity of demand is:
Price Elasticity of Demand = (% change in quantity demanded) / (% change in price)
A price elasticity of demand of -1 indicates that a 1% decrease in price will result in a 1% increase in quantity demanded, and vice versa.
Given Information
- Quantity demanded at a price of 10 rs. per unit = 20 units
- Price elasticity of demand = -1
- New price = 8 rs. per unit
Calculating Quantity Demanded
To calculate the quantity demanded when the price falls to 8 rs. per unit, we can use the price elasticity of demand formula. Let's assume the original price is P1 and the original quantity demanded is Q1, and the new price is P2.
% change in price = (P2 - P1) / P1 * 100
% change in quantity demanded = (Q2 - Q1) / Q1 * 100
We know that the price elasticity of demand is -1, so we can substitute the values into the formula and solve for Q2.
-1 = (% change in quantity demanded) / (% change in price)
-1 = (Q2 - Q1) / Q1 * 100 / (P2 - P1) / P1 * 100
Simplifying the equation:
-1 = (Q2 - Q1) / (P2 - P1)
Cross-multiplying:
Q2 - Q1 = - (P2 - P1)
Q2 = Q1 - (P2 - P1)
Q2 = 20 - (8 - 10)
Q2 = 20 + 2
Q2 = 22 units
Conclusion
When the price falls to 8 rs. per unit, the consumer would demand 22 units of the commodity. This can be explained by the price elasticity of demand, which indicates that a 1% decrease in price leads to a 1% increase in quantity demanded. In this case, the price decreased by 2 rs. per unit (20% decrease), resulting in an increase in quantity demanded of 2 units (10% increase). Therefore, the consumer would demand a total of 22 units when the price falls to 8 rs. per unit.
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