**Q.13.** Price elasticity of demand of a good is -0.75. Calculate the percentage fall in its price that will result in a 15 percent rise in its demand.**Explanation:**The question involves calculating the price change using the concept of price elasticity of demand, which is a measure of how much the quantity demanded of a good responds to a change in price.The formula for price elasticity of demand is:\[\text{Elasticity} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}\]Given:- Price elasticity = -0.75- \% change in quantity demanded = +15%To find the \% change in price, rearrange the formula:\[\% \text{ change in price} = \frac{\% \text{ change in quantity demanded}}{\text{Elasticity}}\]Substitute the given values:\[\% \text{ change in price} = \frac{15}{-0.75} = -20\]Therefore, the price must decrease by 20% to result in a 15% increase in demand.

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price that will result in 15 percent rise in its demand.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

**Q.13.** Price elasticity of demand of a good is -0.75. Calculate the percentage fall in its price that will result in a 15 percent rise in its demand.

**Explanation:**

The question involves calculating the price change using the concept of price elasticity of demand, which is a measure of how much the quantity demanded of a good responds to a change in price.

The formula for price elasticity of demand is:

\[
\text{Elasticity} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}
\]

Given:
- Price elasticity = -0.75
- \% change in quantity demanded = +15%

To find the \% change in price, rearrange the formula:

\[
\% \text{ change in price} = \frac{\% \text{ change in quantity demanded}}{\text{Elasticity}}
\]

Substitute the given values:

\[
\% \text{ change in price} = \frac{15}{-0.75} = -20
\]

Therefore, the price must decrease by 20% to result in a 15% increase in demand.

Expert Solution

Basic concept

# the ratio of the percentage change in the quantity demanded by the percentage change in price gives us the elasticity of demand full stop the value of elasticity of demand is always negative because this shows that there exist negative relationship between price and quantity.

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