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When the price of commodity X falls by 10 percent, its demand rises from 150 units to 180 units. Calculate its price elasticity of demand. How much should the percentage fall in its price so that its demand rises from 150 to 210 units?

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answer is A.

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Detailed Solution

Concept- Assume 150 units as

and 180 units as

and calculate the increase in demand by subtracting

from

. Now, calculate percentage increase in the demand using the relation: -

. Substitute this value in the formula:

to calculate price elasticity of demand

.
Now, consider 210 units as

and calculate the percentage increase in demand from 150 to 210 units. Use the same relation of

to calculate the percentage fall in price in the second case.
Given, percentage change in price

units;

units

units
Percentage change in quantity demanded

Price elasticity of demand

Demand increases from 150 to 210 units when:

units;

units

units
Percentage change in quantity demanded

Price elasticity of demand

Percentage change in price

Price elasticity of demand

.
Percentage fall in price

.
Hence, the correct answer is option 1.

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When the price of commodity X falls by 10 percent, its demand rises from 150 units to 180 units. Calculate its price elasticity of demand. How much should the percentage fall in its price so that its demand rises from 150 to 210 units?

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