Calculating the Price Elasticity of Demand

To calculate the price elasticity of demand when the price of x decreases from rs.40 per piece to rs 20 per piece, we need to use the formula:

Price elasticity of demand = percentage change in quantity demanded / percentage change in price

We can break this down into a few steps:

Step 1: Calculate the percentage change in quantity demanded

To do this, we need to know the initial quantity demanded and the new quantity demanded after the price change.

Let's say that the initial quantity demanded was 1,000 pieces and the new quantity demanded is 2,000 pieces.

The percentage change in quantity demanded can be calculated as:

[(New quantity demanded - Initial quantity demanded) / Initial quantity demanded] x 100%

= [(2,000 - 1,000) / 1,000] x 100%

= 100%

So the percentage change in quantity demanded is 100%.

Step 2: Calculate the percentage change in price

To do this, we need to know the initial price and the new price after the price change.

Let's say that the initial price was rs.40 per piece and the new price is rs.20 per piece.

The percentage change in price can be calculated as:

[(New price - Initial price) / Initial price] x 100%

= [rs.20 - rs.40 / rs.40] x 100%

= -50%

So the percentage change in price is -50%.

Step 3: Calculate the price elasticity of demand

Now that we have the percentage change in quantity demanded and the percentage change in price, we can plug them into the formula for price elasticity of demand:

Price elasticity of demand = percentage change in quantity demanded / percentage change in price

= 100% / -50%

= -2

So the price elasticity of demand is -2.

Interpreting the Results

A price elasticity of demand of -2 means that for every 1% decrease in price, the quantity demanded will increase by 2%. In other words, the demand for x is relatively elastic, meaning that consumers are responsive to changes in price. When the price of x decreases, consumers are willing to buy more of it, resulting in a relatively large increase in quantity demanded.

Here, % change in price is 50.
and let % change in quantity demanded be= Y
so price elasticity Ep = Y/50