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A consumer buys 10 units of a commodity at a price of Rs. 10 per unit. He incurs an expenditure of Rs. 200 on buying 20 units. Calculate price elasticity of demand by the percentage method. Comment upon the shape of demand curve based on this information. |
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Answer» Solution :`{:("Initial PRICE (P) = 10","Initial Expenditure = 100","Initial Quantity (Q) = 10"),("New Price "(P_(1)),,),(=("Exp.")/("Quantity")=(200)/(20)=10,"New Expenditure = 200","New Quantity "(Q_(1))=20),(Delta P = 0,,Delta Q = 10):}` `PED = (Delta Q)/(Delta P)xx(P)/(Q)=(10)/(0)xx(10)/(10)=(100)/(0)=oo` ED is perfectly ELASTIC as price does not change at all in response to the change in quantity demanded. Thus its DEMAND curve will be horizontal/parallel to x-axis. |
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