Reasons of price rise of a book when elasticity is 2 and price rises by 10%

Assignment: Principles of Economics

Question : Suppose the price elasticity of demand for text books is two and the price of the text book is increased by 10%. By how much does the quantity demand fall? Inter the result and discuss reasons for the fall in quantity demand?

Answer : % change in Quantity
Price Elasticity of Demand = %change in price = 2

Percentage increase in price = 10%,

Percentage decrease in quantity = 2 x 10 =20%

Result of Price rise : As above we can see that the elasticity of demand is two and the percentage increase in price is 10%. With the help of formula it is clear that due to the rise in price demand has falls 20 %. Say for example The price of book is Rs. 60. if the price will increase 10% ie. Increase of Rs.6 . This will effect the purchasing power of a person. It can result in many ways

Results of price rise of a book :

A) Decrease in demand :
If the price of the book increases by 10% people may not purchase the book and will result in the decrease in demand.

B) Increase in the Demand of alternate book :
This may happen that the rise in the price of a particular book , people may find the alternate books written by some other author on the same topic. It will increase the demand of alternate book.

C) Decrease the per capita income :
For the poor people if the price of book will increase they may stop reading the book as the price rise has affect their pocket and killed their interest of reading.

D) Change in interest :
Some time an increase in the price rise changes the interest from one product to another. For example if somebody likes reading books and if price rises he may switch to other hobby like games travelling etc

Now we will discuss the reasons for rise in price or we can say the