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A consumer spends Rs.400 on a good priced at Rs.8 per unit. When its price rises by 25 percent, the consumer spends Rs.500 on the good. Calculate the price elasticity of demand by the Percentage method. |
| Answer» <html><body><p></p>Solution :Given <br/> Initial Total <a href="https://interviewquestions.tuteehub.com/tag/expenditure-980222" style="font-weight:bold;" target="_blank" title="Click to know more about EXPENDITURE">EXPENDITURE</a> `TE_(0)=Rs.400`<br/>Final Total Expenditure `TE_(1)`=Rs.500<br/> Initial Price `P_(0)=Rs.8`<br/> Percentage <a href="https://interviewquestions.tuteehub.com/tag/change-913808" style="font-weight:bold;" target="_blank" title="Click to know more about CHANGE">CHANGE</a> in price =+25 <br/> Percentage change in price `=(P_(1)-P_(0))/(P_(0))xx100`<br/>`25=(P_(1)-8)/(8)xx100` <br/> `(200)/(100)=P_(1)-8`<br/>`P_(1)=<a href="https://interviewquestions.tuteehub.com/tag/10-261113" style="font-weight:bold;" target="_blank" title="Click to know more about 10">10</a>`<br/>`{:("Price (P)","Total Expenditure Te=Price P"<a href="https://interviewquestions.tuteehub.com/tag/xx-747671" style="font-weight:bold;" target="_blank" title="Click to know more about XX">XX</a>" Quantity Q","Quantity Q=TEP"),(P_(0)=Rs.8,TE_(0)=Rs.400,Q_(0)=50),(P_(1)=Rs.10,TE_(1)=Rs.500,Q_(1)=50):}`<br/>Now,<br/>`<a href="https://interviewquestions.tuteehub.com/tag/ed-445147" style="font-weight:bold;" target="_blank" title="Click to know more about ED">ED</a>=("Percentage change in quantity demanded")/("Percentage change in price")` <br/> Percentage change in Quantity `= (Q_(1)-Q_(0))/(Q_(0))xx100`<br/>`=(50-50)/(50)xx100` <br/> =0 <br/>`ED=("Percentage change in quantity demanded")/("Percentage change in price")`<br/>`=(0)/(25)` <br/> Ed=0 <br/> Thus, the price elasticity of demand is 0.</body></html> | |