The consumer buys 1000 units of good at a price ₹ 10 per unit. when price falls he buys 1400 units. if the price elasticity of demand is -2, what is the new price ?
old price(p0)= 10 , old qty.(q0) = 1000 , new qty.(q1) = 1400
let new price be x (p1)
if ed is negative then minus sign of formula is not considered.
ed= -{ q1-qo/ p1-p0 * p0/q0}
put values in formula:
-2 = [400/x-10 * 10/1000]
-2= 4/x-10
-2(x-10) = 4
-2x+20 =4
20-4 = 2x
16=2x
16/2 = x
8= x
hence, new price = Rs.8
let new price be x (p1)
if ed is negative then minus sign of formula is not considered.
ed= -{ q1-qo/ p1-p0 * p0/q0}
put values in formula:
-2 = [400/x-10 * 10/1000]
-2= 4/x-10
-2(x-10) = 4
-2x+20 =4
20-4 = 2x
16=2x
16/2 = x
8= x
hence, new price = Rs.8