Consider the demand for a good. At price Rs 4, the demand for the good is 25 units. Suppose price of the good increases to Rs 5, and as a result, the demand for the good falls to 20 units. Calculate the price elasticity.
= - 0.20/0.25
= - 0.8
Therefore, Ed <1
Proportionate change in quantity demanded = (q1-q0)/q0 = -0.20
Proportionate change in price = (p1-p0)/p0 = 0.25
q0 = 25
q1 = 20
p0 = 4
p1 = 5
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