Price Elasticity of Demand

Price elasticity of demand is a measure of the responsiveness of demand for a product or service to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Formula for Price Elasticity of Demand

Price elasticity of demand (P.E.D.) = % change in quantity demanded / % change in price

Calculation of Price Elasticity of Demand

Given, the initial price of X = Rs. 40 per piece
The final price of X = Rs. 20 per piece

We can calculate the percentage change in price as follows:

% change in price = (final price - initial price) / initial price x 100
% change in price = (20 - 40) / 40 x 100
% change in price = -50%

We can also calculate the percentage change in quantity demanded as follows:

% change in quantity demanded = (final quantity demanded - initial quantity demanded) / initial quantity demanded x 100

Unfortunately, we don't have any information on the initial and final quantities demanded, hence we cannot calculate the price elasticity of demand.

Interpretation of Price Elasticity of Demand

Price elasticity of demand can be classified into three categories:

1. Inelastic demand: When the price elasticity of demand is less than 1, it is said to be inelastic. This means that a change in price will have a relatively small effect on the quantity demanded.

2. Elastic demand: When the price elasticity of demand is greater than 1, it is said to be elastic. This means that a change in price will have a relatively large effect on the quantity demanded.

3. Unitary elastic demand: When the price elasticity of demand is equal to 1, it is said to be unitary elastic. This means that a change in price will result in an equal percentage change in the quantity demanded.

Conclusion

Without knowing the initial and final quantities demanded, we cannot calculate the price elasticity of demand. However, we can conclude that a decrease in price from Rs. 40 per piece to Rs. 20 per piece will have an impact on the quantity demanded, the extent of which we cannot determine without more information.

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