Question

A consumer buys 1000 units of a good at a price of Rs 120 per unit when the price falls he buys 1400 units if price elasticity is (-) 2 what is the new price

Answer 1

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Question

A consumer spends Rs.1,000 on a good priced at Rs.10 per 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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Solution

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Initial price (P)=Rs.10

Fall in price by 20 per cent =10×10020=Rs.2

New price (P1)=Rs.10−Rs.2=Rs.8

Price (Rs.)Expenditure (Rs.)Quantity Demanded (Units)101,000101,000=10088008800=100Percentage change in quantity demanded =Q△Q×100=100100−100×100=1000×100=0

Price elasticity of demand (Ed)=(−)Percentage change in pricePercentage change in quantity demanded

=(−)20%0

=0

Price elasticity of demand =0 (zero).