Suppose there is a change in demand of plastic bottles from 700 units to 1000 units as a result of fall of price from Rs. 15 to Rs. 10. Calculate the price elasticity of demand of plastic bottles.

Problem: Suppose there is a change in demand of plastic bottles from 700 units to 1000 units as a result of fall of price from Rs. 15 to Rs. 10. Calculate the price elasticity of demand of plastic bottles.

Solution

As per the formula,

Economic problem solution homework

In this example, the value of the denominator is negative. However, price and demand are inversely related and move in opposing directions. Therefore, the negative sign is ignored. Thus, the elasticity is greater than one (ep > 1).