14.
c. A consumer spends Rs. 1500 on a good priced at Rs.10 per unit. When price rises by 20 percer
consumer continues to spend Rs. 1500 on the good. Calculate price elasticity of demand by pet
change method.
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Answer:
A consumer spends Rs.1,500 on a good priced at Rs.10 per unit. When price rises by 20 per cent, the consumer continues to spend Rs.1,500 on the good. Calculate price elasticity of demand by percentage-change method.
MEDIUM
ANSWER
Initial price (P) =Rs.10
Rise in price by 20 per cent = 10×
100
20
=Rs. 2
New price (P
1
) Rs.10+Rs.2=Rs.12
Given, P=Rs.10; P
1
=Rs.12;
△P=P
1
−P=Rs.12−Rs.10=Rs.2
Q=
10
1,500
=150units;Q
1
=
12
1,500
=125units;
△Q=Q
1
−Q=(125−150)units=(−)25units
Price elasticity of demand (E
d
)=(−)
Q
P
×
△P
△Q
=(−)
150
10
×
2
−25
=
6
5
=0.83
Price elasticity of demand =0.83
Explanation:
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