a consumer spends rs. 1000 ON A GOOD PRICED RS 10 PER UNIT .When price falls by 20 per cent, the consumer spendS Rs 800 on the good. Calculate price elasticity of demand by percentage method
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Asked on November 22, 2019 by
Ajin Babbar
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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ANSWER
Initial price (P)=Rs.10
Fall in price by 20 per cent =10×
100
20
=Rs.2
New price (P
1
)=Rs.10−Rs.2=Rs.8
Price (Rs.) Expenditure (Rs.) Quantity Demanded (Units)
10 1,000
10
1,000
=100
8 800
80
800
=100
Percentage change in quantity demanded =
Q
△Q
×100=
100
100−100
×100=
100
0
×100=0
Price elasticity of demand (E
d
)=(−)
Percentage change in price
Percentage change in quantity demanded
=(−)
20%
0
=0
Price elasticity of demand =0 (zero).
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