Question

a consumer spends rs 60 on a good priced at rs 5 per unit . when price falls by 20% , the consumer continues to spend rs 60 on the good . calculate price elasticity of demand by percentage method

Answer 1

****************************************************************************************************hey mate,

here is your answer :)

given p=rs 5 total expenditure =rs 60

therefore Q=TE/P =60/5=12

P decrease by 20%

P1= 20% less of rs 5 = rs 4

Q1=TE/P1 = 60/4=15

Now question is : P=5 , P1 =4 OR 20% less

Q=12 ,Q1= 15 i.e., 25%

now eD =% change in QD / %change in price

eD=25/20 = 1.25

eD =1.25 > 1 or highly elastic

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