Elasticity of demand

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Querist : Anonymous

Querist : Anonymous (Querist)

06 October 2013 given the demand function Q = 20P, the elasticity of demand at p=20 would be -1.
how?
please explain...!

Nikhil Kaushik

Nikhil Kaushik (Expert)
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06 October 2013 are u sure about this demand function? it appears to be incomplete. Normally demand function is written as Q = a-bp where a is a constant and b is the slope of demand curve.

In case your formula is correct you won't have a negative elasticity. That applies in case of giffen goods.

Querist : Anonymous

Querist : Anonymous (Querist)

06 October 2013 oh...
excuse me it was not Q=20P it was Q = 20/P

Nikhil Kaushik

Nikhil Kaushik (Expert)
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06 October 2013 Yes. the price elasticity will be -1.

The formula for arriving at elasticity shall be:

((P1+P2)*(Q1-Q2))/((Q1+Q2)*(P2-P1))

Querist : Anonymous

Querist : Anonymous (Querist)

06 October 2013 i think the method for this type of problems is point elasticity of demand and derivatives are used to calculate its elasticity .....
but i just cant understand the application of your formulae can you elaborate the procedure please!
thanks,

Nikhil Kaushik

Nikhil Kaushik (Expert)
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06 October 2013 Let say the price is Rs 10.

So as per your formula, if P1 = 10, Q1 = 2

if the price change to Rs 20, P2 = 20, Q2 = 1

Elasticity = ((10+20*(1-2))/((2+1)*(20-10))

= ((30*(-1))/(3*10)

= -30/30 = -1

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