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Price elasticity of demand is (-1), at a given price the consumer buys 60 units of the good. How many units will the consumer buy if the price falls by 10%:

Economics

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Answer

66 units66 \text{ units}

Step-by-step solution

3 steps
  1. Identify the given values.

    Price elasticity of demand (PED) is given as −1-1.
    Initial quantity demanded (Q1Q_1) is 60 units.
    The price falls by 10%10\%, so the percentage change in price (%ΔP\% \Delta P) is −10%-10\%.

  2. Use the price elasticity of demand formula to find the percentage change in quantity demanded.

    The formula for price elasticity of demand is:

    PED=% change in quantity demanded% change in pricePED = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}

    Substitute the given values into the formula:

    −1=% change in quantity demanded−10%-1 = \frac{\% \text{ change in quantity demanded}}{-10\%}

    Now, solve for the percentage change in quantity demanded (%ΔQ\% \Delta Q):

    %ΔQ=−1×(−10%)=10%\% \Delta Q = -1 \times (-10\%) = 10\%
  3. Calculate the new quantity demanded.

    A 10%10\% increase in quantity demanded means the quantity will increase by 10%10\% of the initial quantity.
    Increase in quantity = 10%10\% of 60 units

    Increase in quantity=0.10×60=6 units\text{Increase in quantity} = 0.10 \times 60 = 6 \text{ units}

    The new quantity demanded (Q2Q_2) is the initial quantity plus the increase:

    Q2=Q1+Increase in quantity=60+6=66 unitsQ_2 = Q_1 + \text{Increase in quantity} = 60 + 6 = 66 \text{ units}

    The consumer will buy 66 units66 \text{ units}.

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