Economy, asked by psyed, 9 months ago

A consumer spends rs. 400 on a good priced at rs. 4 per unit. When the price rises by 25 percent the consumer continues to spend rs. 400 calculate the price elasticity of demand of demand by percentage method​

Answers

Answered by Anonymous
4

Answer:

Given:

Initial Total Expenditure (TE

0

)=Rs.400

Final Total Expenditure (TE

1

)=Rs.400

Initial Price (P

0

)=Rs.4

Percentage change in price =+25

Percentage change in price =

P

0

P

1

−P

0

×100

25=

4

P

1

−4

×100

100

100

=P

1

−4

P

1

=5

Price (P) Total Expenditure (TE)= Price (P) × Quantity (Q) Quantity (Q)=

P

TE

P

0

=Rs.4 TE

0

=Rs.400 Q

0

=100

P

1

=Rs.1 TE

1

=Rs.400 Q

1

=80

Now,

E

d

=(−)

Percentage change in price

Percentage change in quantity demanded

E

d

=(−)

25

Q

0

Q

1

−Q

0

×100

E

d

=(−)

25

100

80−100

×100

E

d

=(−)

25

−20

E

d

=0.8

E

d

=0.8

Thus, the price eleasicity of demand is 0.8

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