Question

The price elasticity of demand for good X is half the price elasticity of Good Y. A 20% rise in the price of good X results in a 25% fall in the quantity demanded of good X. What would be the percentage change in the quantity demanded of Y, if the price falls from Rs. 8 to Rs. 6 per unit?

Answer 1

The answer is

60% rise in quantity demanded of good x.

Explanation:

Percentage change in quantity demanded for good Y:

= (Change in Quantity ÷ Initial Quantity) × 100

= (60 units ÷ 400 units) × 100

= 15%

Percentage change in price of good Y = 10% Rise

Therefore, the price elasticity of demand for Good Y is as follows:

= Percentage change in Quantity demanded ÷ Percentage change in price

= 15 ÷ 10

= 1.5

Hence,

Price elasticity of demand of good x:

= 2 × price elasticity of demand of good y

= 2 × 1.5

= 3

Percentage change in price of good x:

= (Change in price ÷ Initial price) × 100

= (2 ÷ 10) × 100

= 20%

Therefore,

Price elasticity of demand for Good x = Percentage change in Quantity demanded ÷ Percentage change in price

3 = Percentage change in Quantity demanded ÷ 20

3 × 20 = Percentage change in Quantity demanded

60% = Percentage change in Quantity demanded for good x

Hence, 60% rise in quantity demanded of good x.