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When price of a good is Rs. 7 per unit, a consumer buys 12 units. When price falls to Rs. 6 per unit he spends Rs. 72 on the good. Calculate price elasticity of demand by using the percentage method. Comment on the likely shape of demand curve based on this measure of elasticity. |
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Answer» Solution :`{:("Initial Price (P) = 7","Initial Expenditure = 84","Initial Quantity (Q) = 12"),("New Price "(P_(1))=6,"New Expenditure = 72","New Quantity "(Q_(1))=("Exp.")/("Price")=(72)/(6)=12),(DELTA P=(-)1,,Delta Q=0):}` `PED=(Delta Q)/(Delta P)xx(P)/(Q)=(0)/((-)1)xx(7)/(12)=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. |
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