Price Elasticity of Demand

Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in its price. It indicates how sensitive consumers are to changes in price. A price elasticity of demand of (-)1 means that a 1% decrease in price leads to a 1% increase in quantity demanded.

Given Information
- Initial quantity demanded: 16 units
- Final quantity demanded: 18 units
- Change in price: 1 rupee

Calculating the Price Before Change
To calculate the price before the change, we can use the price elasticity of demand formula:

Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)

Let's denote the initial price as P and the final price as P'.

Using the given information, we can calculate the percentage change in quantity demanded and price:

% Change in Quantity Demanded = (Final Quantity Demanded - Initial Quantity Demanded) / Initial Quantity Demanded * 100
% Change in Quantity Demanded = (18 - 16) / 16 * 100 = 12.5%

% Change in Price = (Change in Price) / (Initial Price) * 100
% Change in Price = 1 / P * 100

Now, substituting these values into the price elasticity of demand formula:

(-)1 = 12.5% / (% Change in Price)

To solve for % Change in Price, we can rearrange the equation:

% Change in Price = 12.5% / (-)1
% Change in Price = -12.5%

Since the price decreased by 12.5%, we can write this as:

P - (12.5% of P) = P - 0.125P = 0.875P

Therefore, the price before the change is 0.875P.

Conclusion
To determine the specific price before the change, we would need additional information. However, we have calculated that the price before the change is equal to 0.875P.

Ed=∆Q/∆P×P/Q-1 = 2/-1 × P/16 P= Rs 8