Question

BY Using Demand Numaricals solve the question

The demand for a particular brand of readymade shirts is found to vary with the consumer’s income and its own price in the following manner:

Demand (units)	Price (Rs./unit)	Income (Rs.)
3000	750	5000
3600	650	5000
4500	650	6000

a. Find out the price elasticity of demand for the shirts when the price falls from 750 to 650.

b. Find out the income elasticity of demand when Income increases from Rs. 5000 to Rs. 6000.

c. By drawing neat diagrams of the above example, explain the difference between the change in demand and change in quantity demanded.     

Answer 1

a. Price elasticity of demand = %change in quantity demanded /% change in price
={ [ (3600 - 3000) / 3000 ] x 100} / { [ (650 - 750 ) / 750 ] x 100}
= 20 / - 13.33
= - 1.50

b. Income elasticity of demand = % change in quantity demanded/ % change in income
= { [(4500 - 3600 / 3600) x 100 ] / [(6000 - 5000 / 5000) x 100] }
= 25 / 20
= 1.25

c.

From the above diagram we can state that -
Change in demand is the shift in the demand curve from DD1 to DD2. This shift of the demand curve to the right occurs due to a change in factors other than the price.
On the other hand, the change in quantity demand is the movement along the demand curve which is from point A to point B in the graph. This movement along the curve occurs due to a change in the price of the quantity.