مرونة الطلب السعرية

In this video, we calculate price elasticity of demand using initial values.

Question one. The price of a good rises from ten rupees to twelve rupees and the quantity demanded falls from one hundred to eighty units. Find the price elasticity of demand and say whether demand is elastic or inelastic.

Use the initial values as the bases for the percentage changes. Price elasticity of demand equals the percentage change in quantity demanded divided by the percentage change in price.

The percentage change in quantity demanded is eighty minus one hundred, divided by one hundred, times one hundred, giving negative twenty percent.

The percentage change in price is twelve minus ten, divided by ten, times one hundred, giving twenty percent.

Dividing negative twenty percent by twenty percent gives an elasticity of negative one.

The magnitude is one, so demand is unit elastic, neither elastic nor inelastic.

Notice that quantity demanded and price change by equal percentages in opposite directions. Hence, using initial values, price elasticity of demand is negative one, and demand is unit elastic.