Advertisements
Advertisements
Question
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.
Solution
Given:
Actual Total Expenditure (TE0) = Rs 400
Change Total Expenditure (TE1) = Rs 500
Actual Price (P0) = Rs 8
Percentage change in price = +25
Percentage change in price = `(P_1 - P_0)/P_0 xx 100`
`25 = (P_1 - 8)/8 xx 100`
`200/100 = P-1- 8`
`P_1 = 10`
Therefore,
| Price (P) | Total Expenditure (TE) = Price (P) × Quantity (Q) |
Quantity (Q) = `"TE"/P` |
| P0 = Rs 8 | TE0 = Rs 400 | Q0 = 50 |
| P1 = Rs 10 | TE1 = Rs 5 | Q1= 50 |
herefore,
Ed = (-) `"Percentage change in quantity demanded"/"Percentage change in price"`
Ed = (-) `("Changeindemand"/"Actualdemand" xx 100)/(-25)`
Ed = `((Q_1 -Q_0)/Q_0 xx 100)/(25)`
Ed = (-) `((50 - 50)/50 xx 100)/(25)`
∴ Ed = 0
Thus, the price elasticity of demand is 0
APPEARS IN
RELATED QUESTIONS
Price elasticity of demand of goods X is -2 and goods Y is -3. Which of the two goods is more price elastic and why?
The price elasticity of demand for a good is - 0.4. If its price increases by 5 percent, by what percentage will its demand fall? Calculate.
Price elasticity of demand for the two goods X and Y are zero and (–) 1 respectively. Which of the two is more elastic and why?
As we move along a downward sloping straight line demand curve from left to right, price
an elasticity of demand : (choose the correct alternative)
(a) remains unchanged
(b) goes on falling
(c) goes on rising
(d) falls initially then rises
Price elasticity of demand of a good is (-) 1. Calculate the percentage change in price that will raise the demand from 20 units to 30 units.
What is the elasticity of demand?
State whether the following statements are TRUE or FALSE :
The demand of foodgrains is inelastic.
What do you mean by an ‘inferior good’? Give some examples.
Fill in the blank with appropriate alternatives given below:
The slope of demand curve is _______________ in case of inelastic demand.
State whether the following statement is TRUE and FALSE.
Perfectly inelastic demand curve is parallel to the X axis.
Give reason or explain the following statement:
Demand for commodity having multiple uses has elastic demand.
Answer the following question.
If the price of a commodity rises by 40% and its quantity demanded falls from150 units to 120 units, calculate the coefficient of price elasticity of demand for the commodity.
State whether the following statement is true or false. Give valid reasons in support of your answer.
The coefficient of price elasticity of demand for the commodity is inversely related to the number of alternative uses of the commodity.
- Assertion (A): Elasticity of demand explains that one variable is influenced by another variable.
- Reasoning (R): The concept of elasticity of demand indicates the effect of price and changes in other factors on demand.
The concept of elasticity of demand was introduced by
If quantity supplied increases by 60% due to a 50% increase in price, then elasticity of supply is ______
Identify the correctly matched pair from the items in Column A by matching them to the items in column B:
| Column A | Column B |
| 1. Increase or decrease in demand for a commodity does not cause any change in its price. | (a) Effect on supply, in the case of Perfectly Elastic Demand. |
| 2. Increase or decrease in demand causes a change in the price of the commodity. Equilibrium quantity remains constant. | (b) Effect on demand, in the case of Perfectly Inelastic Supply. |
| 3. Increase or decrease in demand cause a change in the price of the commodity. Equilibrium quantity remains constant. | (c) Effect on demand, in the case of Perfectly Elastic Supply. |
| 4. Increase or decrease in demand for a commodity does not cause any change in its price. | (d) Effect on supply, in the case of Perfectly Elastic Demand. |
When is the demand for a good said to be elastic?
