Suppose the price elasticity of demand for a good is (-)1. At a price of ₹4 per unit, demand for the good is 40 units. Suppose the price of the good increases to ₹6 per unit, and as a result, the demand for the good will be ____________.
Answer & explanation
Correct answer: option 2
The correct answer is option (2) : 20 units
$P_1=4,P_2=6$
$Q_1=40,Q_2=?$
$ΔP=P_2-P_1=6-4=2$
$ΔQ=Q_2-Q_1$
$e_D=-1$
$e_D=\frac{ΔQ}{ΔP}×\frac{P_1}{Q_1}$
$-1=\frac{ΔQ}{2}×\frac{4}{40}$
$-1=\frac{ΔQ}{20}$
$ΔQ=-20$
$Q_2-Q_1=-20$
$Q_2=-20+Q_1$
$Q_2=-20+40=20$