InterviewSolution
Saved Bookmarks
InterviewSolution
| 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» <P> Solution :`{:("Initial Price (P) = 4","Initial EXPENDITURE = 100","Initial Quantity (Q)"=(100)/(4)=25),("NEW 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=0):}``PED=(Delta Q)/(Delta P)xx(P)/(Q)=(0)/((-)1)xx(4)/(25)=0` ED is perfectly inelastic as quantity demanded does not change at all in response to change in price. Thus, its demand CURVE will be vertical/parallel to y-axis. |
|