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| 1. |
A consumer spends Rs. 100 on a good at Rs. 4 per unit. When its price falls by 25 per cent, the consumer spends Rs. 75 on the good. Calculate price elasticity of demand by percentage method. |
| Answer» <html><body><p><<a href="https://interviewquestions.tuteehub.com/tag/p-588962" style="font-weight:bold;" target="_blank" title="Click to know more about P">P</a>></p>Solution :`{:("Initial Price (P) = 4","Initial <a href="https://interviewquestions.tuteehub.com/tag/expenditure-980222" style="font-weight:bold;" target="_blank" title="Click to know more about EXPENDITURE">EXPENDITURE</a> = 100","Initial Quantity (Q)"=(100)/(4)=25),("<a href="https://interviewquestions.tuteehub.com/tag/new-1114486" style="font-weight:bold;" target="_blank" title="Click to know more about NEW">NEW</a> Price "(P_(1))=,"New Expenditure = 75","New Quantity "(Q_(1))=("Exp.")/("Price")=(75)/(3)),(3[4-4xx(25)/(100)],,=25),(Delta P=(-)1,,Delta Q=<a href="https://interviewquestions.tuteehub.com/tag/0-251616" style="font-weight:bold;" target="_blank" title="Click to know more about 0">0</a>):}`<br/>`PED=(Delta Q)/(Delta P)xx(P)/(Q)=(0)/((-)1)xx(4)/(25)=0`<br/>ED is perfectly inelastic as quantity demanded does not change at all in response to change in price. Thus, its demand <a href="https://interviewquestions.tuteehub.com/tag/curve-941741" style="font-weight:bold;" target="_blank" title="Click to know more about CURVE">CURVE</a> will be vertical/parallel to y-axis.</body></html> | |