Question

A consumer spends Rs. 60 on a good priced at Rs. 5 per unit. When price falls by 20 per cent, the consumer continues to spend Rs. 60 on the good. Calculate price elasticity of demand by percentage method.
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Answer 1

Answer:

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Answer 2

Explanation:

Answer

Initial price (P)=Rs.1

Rise in price by 100 per cent =1×

100

100

=Rs.1

New price (P

1

)=Rs.1+Rs.1=Rs.2

Given, P=Rs.1;P

1

=Rs.2;△P=P

1

−P=Rs.2−Rs.1=Rs.1

Q=

1

60

=60 units;Q

1

=

2

60

=30 units;△Q=Q

1

−Q=(30−60)units=(−)30 units

Price elasticity of demand (E

d

)=(−)

Q

P

×

△P

△Q

=(−)

60

1

×

1

−30

=

2

1

=0.5

Price elasticity of demand =0.5.