question_answer

What will be the effect of 10 percent rise in price of a goods on its demand if price elasticity of demand is (a) Zero, (b) \[\mathbf{1}\], (c) \[\mathbf{2}\].

Answer:

Percentage change in price=10%

(a) \[{{E}_{d}}\]=0

\[{{E}_{d}}=\frac{\text{Percentage}\,\,\text{change}\,\,\text{in}\,\,\text{quantity}\,\,\text{demanded}}{\text{Percentage}\,\,\text{change}\,\,\text{in}\,\,\text{price}}\]

0 = percentage change in quantity demanded \[\div \,10\]

Percentage change in quantity demanded is 0.

(b) \[{{E}_{d\,\,}}=\,\,-1\]

\[{{E}_{d}}=\frac{\text{Percentage}\,\,\text{change}\,\,\text{in}\,\,\text{quantity}\,\,\text{demanded}}{\text{Percentage}\,\,\text{change}\,\,\text{in}\,\,\text{price}}\]

\[1\]= percentage change in quantity demanded \[\div \,10\]

Percentage change in quantity demanded is \[10%\]

(c) \[{{E}_{d}}=-2\]

Ed = Percentage change in quantity demanded \[\] Percentage change in price

\[2\]= Percentage change in quantity demanded \[\div \,10\]

Percentage change in quantity demanded is \[20%\]