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Comment upon the degree of elasticty of demand for Good X, in the following given situation, if the price of the commodity rises from ₹5 per unit to ₹ 7 per unit and the quantity demand falls from 20 units to 16 units using proportionate method. |
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Answer» Solution :(i)`{:("Price (Rs.)","Quantity (in UNITS)","Total Expenditure in Rs."("Price"xx"Quantity")),("5","20","100"),("7","16","112"):}` So, above table shows positive relationship between price and total expenditure, which shows Inelastic Demand `(ED lt 1)`. (ii)`{:("Initial Price (P) = 5","Initial Quantity (Q) = 20"),("New Price "(P_(1))=7,"New Quantity "(Q_(1))=16),("Change in price "(Delta P)=2,"Change in Quantity "(Delta Q)=(-)4):}` Price Elasticity of demand `(ED)=(Delta Q)/(Delta P)xx(P)/(Q)` `=(-4)/(2)xx(5)/(20)` `=(-)0.5` [Negative sign of ED indicates the INVERSE relationship between price and Quantity DEMANDED] ED = 0.5 [ED `lt 1` (Inelastic Demand)]. |
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