ow Introductory Microsc, oo ity 4.8 SOLVED PRACTICALS 1. Percentage Method / Proportionate Method Percentage Change In Quantity Demanded Lean ming Percentage Change in Price ae 2 Slope of Demand Curve" Q Elasticity of Demand (€,)=75 *q {Slope of Demand Curve* = 4/40} hod (Or Total Outlay Method or Total Revenue Method) 2. Total Expenditure Met! () &,< 1: When TE varies directly with price. (i &,> 1: When TE varies inversely with price, = 1: When TE does not change with change in price. isticity of Demand (When both price and quantity are given) unit, demand for a commodity is 100 units. As the price fal Calculate elasticity of demand. Calculation of Ela: Example 1. When price is@10 per to ®8 per unit, demand expands to 150 units. Solution: Original Quantity (Q) = 100 units | Original Price (P) SHORT IO New Quantity (Q,) = 150units | New Price (P,) = 8 ‘Change in Quantity (AQ) = _50units_| Change in Price (AP) = 72 Elasticity of Demand (E,) =? Price Elasticity of demand (€,) = 42 xP ap 6Q Ans. Ey=(-)25 (Demandis highly elasticas E,> 1) "Negative sign ofE, indicates the inverse relationship between price and quantity demanded. Example 2. When price of sugar is € 5 per kg, its demand is 50 kg, When price rises by 5 pet kg, its demand falls by 10 kg. Calculate the elasticity of demand. Solution: Original Quantity (Q) 50kg_| Original Price (P) = 5 New Quantity (Q,) 40kg_| New Price (P,) = 10 = = 5 =10kg_| Change in Price (AP) Elasticity of Demand (E,) =? Change in Quantity (AQ) AC P= 20, P30, 5 ‘pr Q 5 50 Ans. E,=(-)0.2 (Demands less elastic as Ey<1) Negative sign of E indicates the inverse relationship between price and, quantity demanded. entity demande Price Elasticity of de icity of demand (E, =()02 @ scanned with OKEN Scannerchapter > Elasticity of Demand ple 3. The demand for a good falls to 240 units in response to ris in price by @ 2. If the exam| original demand was 300 units at the price of 8 20, calculate price elasticity of demand. solution: New Quantity (Q,) = 240 units | Rise in Price (AP) pos 2 Original Quantity (Q) = 300 units | Original Price (P) 2 20 ‘Change in Quantity (AQ) = -60units | New Price (P,) 7 Enea, ‘of Demand (E,) =? arr price lasticty of Demand (E,) =22x © == x20 = (2 ‘AP. 2 300 ns. E4=()2 (Demands highly elastic as E,> 1) Negative sign of E indicates the inverse relationship between price and quantity demanded, Calculation of Price or Quantity (When Elasticity of demand is given) $e in price, the market demand fora good at 4 per unit is 100 units. Due to increas gxample4. The if the price elasticity of demand is (-)1. market demand falls to 75 units. Find out the new price, Solution: Original Quantity (Q) = 100units | Original Price (P) = t4 New Quantity (Q,) = 75units | New Price (P,) 7 2 Change in Quantity (AQ) = -25units_| Change in Price (ap) 7 ap. Elasticity of Demand (E,) =(-) 1 AQ, P price lasticty of demand (é)) = 22 ap Q =2235 4 6 ap =k ‘ap 100 price will increase. It means, ‘As the quantity demanded is decreasing, 441285 New Price = Original Price (P) + Change in Price (AP) = Ans. New Price =%5 er buys 100 units of good X. At what Example 5, When the price of good X is €5, the consum’ X? The price elasticity of demand for Price would he be willing to purchase 140 units of good Bood X is 2, Solution: Original Quantity (Q) = 100units Original Price (P) = eS Original Quantity (Q,) ___= _140units_| New Price (P,) = 2 Change in Quantity (AQ) = _40units_| Change in Price (AP) = AP Elasticity of Demand (E,) =2 Price Elasticity of demand (E,) Scanned with OKEN ScannerIntroductory Micoecs, Wn i) 2 = obpe tl ae il It means, ‘Asthe quantity demanded is increasing, price will decrease. ice (AP) =@5-81=%4 New Price = Original Price (P) - Change in Price (ap)=%5-21 ‘Ans, New Price=%4 Example 6. A consumer buys 80 units of a good ata price of %5 per unit. Suppose, the Pre ice wi its? elasticity of demand is (-) 2. At what price will he buy 64 units? Solution: _ 7 Original Quantity (Q) = BOunits | Original Price (P) = cc ‘New Quantity (Q)) = 64units | New Price (P,) = 2 Change in Quantity (AQ) = - 16units | Change in Price (AP) = oe Elasticity of Demand (E,) =-2 ao P. Price Elasticity of demand (E) = Q > ,ap = %05 80 Asthe quantity demanded is decreasing, price will increase. It means, ‘New Price = Original Price (P) + Change in Price (AP) =5 +0.5=%5.5 Ans. New Price=%5.5 Example7. The demand for a good at € 10 per unit is 40 units. Price falls by € 5. If price elasticity of demand is (-) 3, calculate the new quantity demanded. Solution: Original Quantity (Q) = 40units | Original Price (P) = @10 New Quantity (Q,) 2_| Fallin Price (AP) = Ss Change in Quantity (MQ) = 4Q_| New Price (P,) = R5 ; = Elasticity of Demand (E,)= 3 y of demand (e,) =22,, P_ AP Q 4Q= 60units : @ scanned with OKEN Scannerchapter > Elasticity of Demand Cor solution: Original Quantity (Q) = 25units New Quantity (Q,) = 2 se Change in Quantity (4Q) = aQ_[NewPrice (,) 7 yy of Demand (E,) = 1 ri OQ, 5 ie ag = Sunits 1 25 As price is increasing, New quantity = Original quantity (Q)~ Ch ns. New Quantity = 20 units 1 the quantity demanded will decrease. It means, ange in quantity (AQ) = 25 ~ 5 = 20 units %2 per unit, its quantity demanded increases example9. When the price of a commodity falls Py by 10 units. Its price elasticity of “femand is (-) 1. Calculate its quantity demanded at the price before change which was ® 10 per unit. Solution: Increase in Quantity (aq) = 10 units | Original Price (P) = 710 Original Quantity (Q = 7 | Fall in Price (AP) = -%2 New Price (P)) = 8 Flasticity of Demand (E,)=(-)1 ice Gastety of demand (E,) <2 a ap Q uo ie. Q = 50units _ 7 iginal Quantity) = 50 units Ans, Quantity demanded at price before change (Ori commodity is 80 units, the d ty of demand is 1.5, calculate Example 10. The initial demand for a emand falls by 4 units due the price before change in torise in price by & 10. If price elasticit demand. Solution: Initial Demand (Q) = BO units | Rise in Price (AP) = 10 Fall in Demand (AQ) = 4units | Original Price (P) = 2 New Demand (Q,) = Fo units | Elasticity of Demand (E,)__= 15 R a) Price Elasticity of demand (E4) = sa P aP 524 eps 7) ta" Ans, Pri ce Before Change in Demand (Original Price) = < 300 @ scanned with OKEN Scanner4 Introductory Microecon, Mics od Elasticity of Demand by Percentage Meth 9 antity demanded of it Example 11. When price of a commodity falls by 80%, the quantity Hiner by 100%. Find out its price elasticity of demand. Solution: %ChangeinDemand = 100% | %Change in Price [sechangeinpace = = Batty of emand ,)=? : Percentage change in Quantity demanded _ 100% Hy of Demand (€) = Percentage change in price 80% Price Elasticity of demand (E,) = (-) 1.25 E,>1) Ans. Ey=(-) 1.25 (Demandis highly elasticas Ey en Vets odes mre rrr beree eon ott dande Example 12. When price of a commodity gets doubled, its quantity demanded reduced to ha Calculate the coefficient of price elasticity of demand. Price Elas Solution: '% Change (Fall) in Demand = - 50% % Change (Rise) in Price = 100% Elasticity of Demand (E,) =? brie Easticity of Demand (€,) = PetCentage change in Quantity demanded _ ~ 50% ice =) = Percentage change in Quantity demanded Percentage change in price 100% Price Elasticity of demand (E,) = (-) 05 Ans. E,=(-)0.5 (Demandis ess elasticas E, < 1) "Negative sign of indicates the inverse relationship between price and quantity demanded. Example 13. A 5% fall in the price of x leads to 10% rise in the demand for x. A 20% rise in te Price of y leads to 6% fall in the demand for y. Calculate the price elasticities of demand of and y. Out of x and y, which commodity is more elastic? Solution: Price Elasticity of Demand for’x’ % Change in Demand of x= 109% % Change in Price ofx ==5% Elasticity of Demand (E,) = Price Elasticity of Demand (c,) = Percentage change in Quantity demanded — 10% Percentage change in price . Price Elasticity of Demand (E,) =(-)2 Price Elasticity of Demand for'y’ 9% Change in Demand of y = — 6% 5 Change in Price ofy = 20% Elasticity of Demand (E,) =? Price Elasticity of Demand (E,) = Pefcentage change in Quantity demanded Percentage change in price 20%) Ans. Price Elasticity of x= (-) 2; Price Elasticity ofy = (-) 03:8 more elastic as comy of ‘Negative sign of E, indicates the inverse relationship between pared to commodi rice and quantity demanded, J @ scanned with OKEN Scannerés 44. Aconsumer buys 20 units of a good a peru mae price foe ey, buys 20 units of a good at® 1 Wher falls by 10% am? {rises to 22 units. Find sae . Find out the price elasticity of demand. ar Elasticity of Demand 4A7 glee aT DOU Original Quantity (Q) = 20units on New Quantity (Q,) = 2units | Elasticity of Demand (E,) =n Change in Quantity (MQ) _= _ units Radon etd : ; a percentage change i” demand = 22x 100 = 2 x 100 = 10% Q 20 seats en is Percentage change in price =10% ce lestcity of Demand =)! L)1 (Demand is unitary elastic) indicates the inverse relationship ans. Ey between price and quantity demanded. gate sign of Eg grample 15. The quantity demanded of a commodity at a price of & 8 per unit is 600 units. qs pice falls by 25 pet cent and the quantity demanded rises by 120 units. Calculate the prceelasticity of demand. Is its demand elastic? Give reason for your answer. Solution: Original Quantity (Q) = 600 units | % Change in Price =~ 25% Change in Quantity (@Q) = _120.units Elasticity of Demand (Ey) = 2 ‘New Quantity (Q,) = 720units Percentage change in demand = BQ 199 = 122 x 100 = 20% Q 600 i demanded __20% pice lasicty of Demand (E) = percentage change in Quantity demande — Percentage change in price = 25% Price Elasticity of Demand (E,) = (-) 0.8 Ans, E,=()08; (Demands less elastic because Ey < 1) a ween price and quantity demanded. Negative sign of indicates the inverse relationship bet commodity when its pric nd fora e increases be ample 16, Calculate the price elasticity of demat sto 120 units. 5 25% and quantity demanded falls from 150 units Solution; 1% Change in Price 150 units Elasticity of Demand (E,) Original Quantity (Q) New Quantity (Q,) = 120 units -30 units =30 y 100 = - 20% 150 Perce tage change in demand = 22 x 100 Q @ scanned with OKEN Scannertroductory Micro, Int ha cat) 20% 25% it ded Percentage change in Quantity deman Percentage change in price Price Elasticity of Demand (E,) Price Elasticity of Demand (E,) = (-) 08 (-)08; (Demandis less elastic because E, < 1) a ice and ig “lationship between price ‘Negative sign of E indicates the inverse re " te le 17. The price of commodity is € 15 per unit and its quantity demanded is 500 Units Example 17. miled rises by 80 units as a result of fall in its price by 20 per cent. Calculy, impiety i Jastic? Give reason for your answer. quantity demanded. its price elasticity of demand. Is its demand inel Solution: : Original Quantity (Q) = 500units | % Change in Price = -20% Change in Quantity(AQ) = —_ 80units Elasticity of Demand (Ey) = 2: New Quantity (Q,) = 580 units AQ 80 Percentage change in demand =——x 100 = sap * 100= 16% Price Hasty of Demand (e,) — Percentage change in Quantity demanded __16% Percentage change in price = 20% Price Elasticity of Demand (E,) =(-)0.8 Ans. Ey Original, | Quantity (Q) = 800units Original Price (P) = % Change in: Quantity = = 20% Change in Price (ap) = Elasticity of Demand (E,) = 1 | New Price (P.) : = = 25 Percentage change in price= 4? 100 => Heck eae 0 = 25% Price Eastcty of Demand (€,) = Petcentage change in Quantity demanded . ae )=(-) 08 a = (-) 0.8; (Der : « inandlsless els because, < D Negative sign of indicates the inverse relation Example 19, When price of a Calculate its price elasticity of Price Elasticity of Demand Ans. E, between price and quantity demanded, 800d falls from, i aoe 5 to®3 per unit, its demand rises by 40" @ scanned with OKEN Scanner4 > Elasticity of Demand chapter sat alice) ri = SuSESSCInSES origins 5_[%Changein Quantity = 40% New Price (1) 5. 3. | Elasticity of Demand (E,) = 7 Change in Price (AP) =euate a percentage change in price == 100 ==2x 100 =- Ave Percentage change in Quantity demanded __ 40% icity of Demand (Ey) = price Elasticity f Percentage change in price = 40% price Elasticity ‘of Demand (E,) = (-) 1 )1 (Demand is unitary elastic) indicates the inverse relationship between price and quantity demanded. lasticity of Demand (When Total Expenditure is given) ans. Eg= egativesign of Calculation of E! example 20. Calculate price elasticity of demand: 500 6 420 70 Original Quantity (Q) Z 100 units | Original Price (P) = a5 New Quantity (Q,) = 7ounits | New Price (P,) = 6 Change in Quantity (@Q)__= ~30units_| Changein Price (AP) = a Elasticity of Demand (E,) =? 2a, P_-30, 5 Pi AO Far x= 15 ice Estity of Demand (E) =" * "| 700 Ans. E,=(-) 1.5 (Demands highly elastic as E,> 1) / ote sgt nares the nese relations betwen pce and quanti demande : mer i its price i itand spends Bample2t. A ds€80 ona commodity when its price ist 1 per un’ ah’ feeb 2 per uni 7 d for the commodity by elasticity of deman %96 when its price is & 2 per unit. Calculate price the percentage method? Solution: 48 @ scanned with OKEN ScannerIntroductory Microecong i mi Ig 4,20 _ Price (P) 1 : = po units _| Original a Griginal Quantity = New Price (P,) = 52 ‘New Quantity (Q)) ci Change in Quantity (AQ) Change in Price (AP) Tlastilty of Demand (E,) =? 732. 190 = - 40% Percentage change in deman = 22 x 100 Q 1x 100 = 100% 1 ap Percentage change in price=—>-% 100 Percentage change in Quantity demanded. _ - 40% Price Elasticity of Demand (E,) = Pasnenaechanae 700% Price Elasticity of Demand (E,) = (-) 0.4 ‘Ans. E,=(-)0.4 (Demandis ess elastic as Ey< 1) Negative sign of ndicatesthe inverse relationship between price and quantity demanded. Example 22. A dentist was charging € 300 for a standard cleaning job and it used to generate total revenue equal to € 30,000 per month. She has, since last month, increased the price of dental cleaning to % 350. As a result, fewer customers are now coming for dental cleaning but the total revenue is now % 33,250. From this, what can we conclude about the elasticity of demand for her dental service? Solution: 300 = 100 95 Total Expenditure Method With increase in fees, the total revenue of d , Iti in eee lentist has also increased, Hence, the elasticity of demand Proportionate Method Original Quant = 8 rae wy a = 100 _| Original Price (P) = €300 Change in Quanti 5 eet ae ity (QQ) = =5_| Change in Price (AP) = X50 Elasticity of Demand (€,) =? % Price Elasticity of Demand (,) 8,200 Too 7 03 Ans. E, )03 (Demand isless lasticas E, <1) ‘Negative sign of indicates the inverse relationship bet s lp between price and quanti ‘quantity demanded, @ scanned with OKEN Scannercnapter# 7 Elasticity of Demand | _ 23. With rise in pri esa ecomes 1 “20, Cale from @8 to @ 14, total expenditure on th i Sra else rie eBe of emer date esd ae oPucoe 7 a ‘ate whether demand. is elastic OF inelastic. solution: ae ornare) ae 1 Quantity (Q) = 100units [orgnalPriee®) =O w14 Original New Quantity (Q) = 80units | New Price (P,) change in Quantity (AQ) = -20units | Change in Price (AP) Cn a eee Demnd @J=2 Elasticity of Demand (E,) =? P=20, F-40267 700 = %6 1Q ic ic demand (E) =">* OQ 6 price Elasticity (Ey 0.16 ans. E42) 0267 (Demands ess elastic as E,< 1) oe:**Calculation of Original Expenditure: Let original Expenditure be x. iven:New Expenditure = 1,120. ‘Aso Given: x4.40% of = 1120 pete 110 100 140x=1,12,000 ‘xorOriginal Expenditure = €800 Price Elasticity ‘of Demand by Total Expenditure Method penditure method: sticity of demand by total ex Example 24. Calculate the ela 4 6 | 50 Solution: Demand is less elastic (Ey < 1) as the total expenditure increases from % 40 to & 50 with rise in price from 4to® 6. Ans. Demands less elastic Ey < 1) Examy < Fe oe As the price of a product decreases by 7%, the total expenditure onit goes up by tan we say about the elasticity of demand for this product? .e in price Solution; Demand is Hi Beach is highly elastic (€, > 1) as total expenditure has increased by 3.5% with a decreas Ans, D mand is highly elastic (E4> 1) @ scanned with OKEN ScannerIntroductory Microecon, oy Mics 3 per unit. When the pricey, of demand by total expengi, {CBSE, Delh ice of | od at the price o ggunits of. B00°* ici Aconsutet Oe Calculate the price elas! ity it, he buys Lure Example 26- in to% 4 per uni method. Solution: 40 30 = 1)as total expenditure remains th 3 we same at € 120 with an increase in 4 Demand is unitary elastic (Ey price from 3to% 4 ‘ans, Demand isunitary elastic Example 27. When the price of a g00 =) ae ; .d rises from & 5 per unit to 26 per unit, its demand falls enditures incurred on the good to determine whether from 20 units to 10 units. Compare the exp ean ten its demand is elastic or inelastic. y 200! ~~ 5 20 100 6 10 60 Demands highly elastic (€, > 1) a total expenditure has decreased from 100 to® 60 with an increase : inthe price from 5 to% 6. ‘Ans. Demand shighly elastic (E,> 1) Example 28. A consumer buys 10 units of a good at a pri it. Pri icity of ‘ ouys @ price of % 6 per unit. Price elasticity oe peo . 1. Atwhat price will he buy 12 units? Use expenditure approach of price elasticity Solution: eeearestion (CBSE, Delhi 2011 (1) 6 : 10 60 = : 2 \s price elasticity of demand is unity, ie, : at 60, It means, Price after change signifies that total expendi i =TRE Gee -xpenditure wil d Ans. 5 per unit. P= TR+Q=60+12=85 per unit, ae Miscellaneous P Ex le 29. ic ici lstlcals | Price of x falety oR nae _ demand for good x ig kni ¥ 0 while that o k ow : ; quanties demanded of andy 04 Y "8 BY 5%, What the pen oe sea percentage change in Percentage fall in price of X = 59 Also, price elasticity (E,) of Xs t % i Percentage rise in wice of goody PCE OFY = 5%, @ scanned with OKEN Scanner2 Introductory Microeeg, ng dat the price of€3 per unit. When the of demand by total eel tag 10 units of a goo Example 26. A consumer buys 4 ito ce esti to® 4 per unit, he buys 30 units. CBSE ity method (CBSE, Daag Solution: 2 30 120 ~ f —~ Demand is unitary elastic E, = 1) as total expenditure remains the same at & 120 with an increase iy ~ ' price from 3 to& 4, ‘Ans, Demand is unitary elastic (Ey = 1) ’ ie Example 27. When the price of a good rises from %5 per unit to % 6 per unit, its demand fal from 20 units to 10 units. Compare the expenditures incurred on the good to determine whether its demand is elastic or inelastic. ICBSE, Dethi 2008 (yy Solution: 5 20 100 6 10 60 Demands highly elastic E,> 1) as total expenditure has decreased from & 100 to ® 60 with an increase inthe price from® 5 to® 6, ‘Ans. Demand is highly elastic (E, > 1) Example 28. A consumer buys 10 units of a demand is (-) 1. Atwhat price will he bu of demand to answer this question. good at a price of & 6 per unit. Price elasticity of y 12 units? Use expenditure approach of price elasticity Solution: 6 7 10 {CBSE, Delhi 2011 (10) 60 2 ? As price elasticity of demand is unity, ie. -1, it signifies that total ex a 60.Itmeans, Price after change =TR =Q=60.+ 12% Soe renee will remain unchanged Ans. 75 per unit. . een Miscellaneous Practicals imple 29. The price elastici is Price of X falls by 5% while oe sont fot good X is known to be twice that of good quantities demanded of x anges 800d Y rises by 5%. What is the Percentage change in the Solution: ' Percentage fallin price of x = 5%; Percent Also, price elasticity (E tage rs OFX is twice of g ‘98 rise in price of Y = 595 jood Y @ scanned with OKEN Scanner