Question

A consumer buys 10 units of a commodity at a price of Rs. 10 per unit. He incurs an expenditure of Rs 200 on buying 20 units. Calculate price elasticity of demand by the percentage method. Comment upon the shape of demand curve based on this information. 

Answer 1

Given: 

Initial Price `(P_1)`=Rs 10 

Initial Quantity (Q)=10units 

Final expenditure=Rs 20 

Final quantity=20 units 

We know, 

final expenditure=final price xx final Quality` 

Or, `200=p_2xx20` 

Or, `P_2=Rs 10` 

Change i Price, `ΔP=(p_2-p_1)=(10-10)=0` 

Change in quntity, `ΔQ=(Q_2-Q_1)=(20-10)=10` 

Now, 

`e_d=10/0xx10/10` 

Substituting the value. 

`e_d=10/0xx10/10⇒e_d=α` 

In this case, the demand curve is a horizontal straight line parallel to x-axis.