Assume that the absolute value of price elasticity of demand for a commodity is one when the prices is RS.4, the demand is Rs.300 units. what amount will be demanded is price falls to Rs.3?

Question

Answer

Given Information

Absolute value of price elasticity of demand = 1

Price = Rs.4

Demand = 300 units

Calculation of Price Elasticity of Demand

Price Elasticity of Demand = % change in quantity demanded / % change in price

Given, absolute value of price elasticity of demand = 1

Therefore, % change in quantity demanded = % change in price

Calculation of % Change in Quantity Demanded

% Change in Quantity Demanded = (New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded x 100%

Let's assume that the new price is Rs.3 and we need to calculate the new quantity demanded.

% Change in Quantity Demanded = (New Quantity Demanded - 300) / 300 x 100% = -25%

This means that if the price falls from Rs.4 to Rs.3, the quantity demanded will decrease by 25%.

Calculation of New Quantity Demanded

% Change in Quantity Demanded = % Change in Price (Given)

Therefore, % Change in Price = -25%

% Change in Price = (New Price - Old Price) / Old Price x 100%

-25% = (New Price - 4) / 4 x 100%

New Price = Rs.3

Using the original price and quantity demanded, we can calculate the price elasticity of demand as follows:

Price Elasticity of Demand = % change in quantity demanded / % change in price

Price Elasticity of Demand = -25% / -25% = 1

Conclusion

If the price falls from Rs.4 to Rs.3, the new quantity demanded will be 225 units (25% decrease from the original demand of 300 units).

Answer

Answer

400

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