Question

What will be the effect of 10 percent rise in price of a good on its demand if price elasticity of demand is (a) Zero, (b)-1, (c)-2.

Solution

(a) When E_d(Elasticity of demand) is zero
$straight E subscript straight d space equals space fraction numerator Percentage space change space in space quantity space demanded over denominator Percent space change space in space price end fraction$
$0 space equals space fraction numerator Percentage space change space in space quanity space demanded over denominator 10 end fraction$
Therefore, Percentage change in quantity demand = 0, so it has no effect on demand
(b) E_d = -1, Percentage change in price = 10
$negative 1 space equals space fraction numerator percent sign space change space in space quantity space demanded over denominator percent sign space change space in space price end fraction minus 1 space equals space fraction numerator percent sign space change space in space quantity space demanded space over denominator 10 end fraction$
Therefore, Percentage change in quantity demand = -10.
(c) Ed = -2, Percentage change in price = 10
$straight E subscript straight d space equals space fraction numerator percent sign Change space in space quantity space demanded over denominator percent sign space Change space in space price end fraction minus 2 equals fraction numerator percent sign Change space in space quantity space demanded over denominator 10 end fraction$
Therefore, Percentage change in quantity demanded= -20

Some More Questions From Theory Of Consumer Behaviour Chapter

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Theory Of Consumer Behaviour

What will be the effect of 10 percent rise in price of a good on its demand if price elasticity of demand is (a) Zero, (b)-1, (c)-2.

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