Distinguish between Percentage Method and Total Outlay Method.

1.	Distinguish between Percentage Method and Total Outlay Method.
Answer» Percentage Method: 1. According to this method elasticity of demand is equal to the ratio of percentage change in the quantity demanded to percentage change in the price. 2. (1) If the result in one, the Elasticity is unitary. (2) If the result is > 1 the demand is relatively elastic and (3) If the result is < 1 then demand is relatively Inelastic. Total Outlay Method: 1. Under this method Elasticity is measured by observing the changes in outlay in response to change in price. 2. Elasticity of demand is measured by the kind of changes in total expenditure. When with increase or decrease in price, the outlay remain constant the elasticity is equal to one. If outlay and price are inversely related then demand is relatively elastic. If outlay and price are directly related then demand is relatively Inelastic.

Answer»

Percentage Method:

1. According to this method elasticity of demand is equal to the ratio of percentage change in the quantity demanded to percentage change in the price.

2. (1) If the result in one, the Elasticity is unitary.

(2) If the result is > 1 the demand is relatively elastic and

(3) If the result is < 1 then demand is relatively Inelastic.

Total Outlay Method:

1. Under this method Elasticity is measured by observing the changes in outlay in response to change in price.

2. Elasticity of demand is measured by the kind of changes in total expenditure.

When with increase or decrease in price, the outlay remain constant the elasticity is equal to one.
If outlay and price are inversely related then demand is relatively elastic.
If outlay and price are directly related then demand is relatively Inelastic.

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