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The price of a good is £1.20 per unit and annual demand is 800,000 units. Market research indicates that an increase in price of 10p per unit will result in a fall in annual demand of 70,000 units. Assume that the demand curve is a straight line.
Calculate the elasticity of demand when the price is initially £1.30 and the price falls to £1.20.
In the solution, there is an assumption that the unit quantity drops down to 730,000. When I worked it out, I assumed the units remained the same at 800,000. Can you explain why I would need to assume the quantity changes and not just the price, please?
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