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
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****************************************************************************************************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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