The price elasticity of demand quantifies how a good's demanded quantity reacts to its price fluctuations. It is calculated as the ratio of the percentage change in quantity demanded to the percentage change in price:
E_d = \(\frac{\%\Delta Q_d}{\%\Delta P}\)
In this specific case, the good's price drops from Rs 30 to Rs 25, while the quantity demanded remains constant. Let's detail the calculation:
| Variable | Initial Value | New Value |
|---|---|---|
| Price | Rs 30 | Rs 25 |
| Quantity Demanded | Q (constant) | Q |
Step 1: Determine the percentage change in price:
\(\%\Delta P = \frac{\text{New Price} - \text{Old Price}}{\text{Old Price}} \times 100 = \frac{25 - 30}{30} \times 100 = -16.67\%\)
Step 2: Determine the percentage change in quantity demanded:
\(\%\Delta Q_d = \frac{\text{New Quantity} - \text{Old Quantity}}{\text{Old Quantity}} \times 100 = \frac{Q - Q}{Q} \times 100 = 0\%\)
Step 3: Compute the price elasticity of demand using the formula:
E_d = \(\frac{0\%}{-16.67\%} = 0\)
With a price elasticity of demand of 0, the demand is classified as Perfectly Inelastic. This signifies that the quantity demanded is unresponsive to any changes in price.