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A consumer spends Rs. 1000 on a good priced at Rs. 10 unit. When its price falls by 20 per cent, the consumer spends Rs. 800 on the good. Calculate the price elasticity of demand by the Percentage method. |
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Answer» Solution :`{:("Initial Price (P) = 10","Initial Expenditure = 1000","Initial Quantity (Q)"=(1000)/(10)=100),("New Price "(P_(1))=,"New Expenditure = 800","New Quantity "(Q_(1))=("Exp.")/("Price")=(800)/(8)=100),(10-10xx(20)/(100)=8,,),(Delta P=(-)2,,Delta Q=0):}` `PED=(Delta Q)/(Delta P)XX(P)/(Q)=(0)/((-)2)xx(10)/(100)=0` ED is perfectly inelastic as quantity demanded does not change at all in response to change in price. Thus, its demand curve will be vertical/parallel to y-axis. Numerical Problems to Calculate Price or Quantity (When Price Elasticity of Demand is given). |
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