Given the demand function P = 20 – 5Q, find the price elasticity of demand when price of the commodity is 5 Birr per unit. Mention if the demand is price elastic or inelastic at this point

The price elasticity of demand is -0.33 and it is price inelastic.

Since the price function is given as:

P = 20 - 5Q

where, P = 5

Then the quantity will go thus:

P = 20 - 5Q

5 = 20 - 5Q

5 - 20 = - 5Q

-15 = -5Q

Q = -15/-5.

Q = 3

The price elasticity of demand will be:

dQ/dP × P/Q = -1/5 × 5/3 = -1/3 = -0.33

In conclusion, the price elasticity of demand is -0.33.

In this case, the demand is said to be price inelastic since the price elasticity of demand is less than 1.

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