50 units of good X is demanded at a price of 10 per unit. When price changes the Quantity demanded rises by 20 units. Calculate the new price of good X. The coefficient of elasticity of demand as unity.

6

The correct answer is option (2) : 6

• Initial quantity demanded (Q1) = 50 units
• Initial price (P1) = ₹10 per unit
• Increase in quantity demanded (ΔQ) = 20 units
• Elasticity of demand (Ed) = 1 (unitary elastic)

We know unitary elasticity (Ed = 1) means that the percentage change in quantity demanded is equal to the percentage change in price (with opposite signs).

Here's how to find the new price (P2):

Calculate the percentage change in quantity demanded (%ΔQ):= (ΔQ / Q1) * 100 (%ΔQ)

= (20 units / 50 units) * 100 (%ΔQ)

= 40%

Since the elasticity is unitary (Ed = 1), the percentage change in price (%ΔP) will also be 40% but with a negative sign (price decreases to increase quantity demanded).

(%ΔP) = -40%

We can now use the initial price (P1) and the percentage change in price (%ΔP) to find the new price (P2):

P2 = ₹10 + (₹10 * -40%) / 100

P2 = ₹10 - ₹4

P2 = ₹6