8 units of a good are demanded at a price of Rs 7 per unit. Price elasticity of demand is (−) 1. How many units will be demanded if the price rises to Rs 8 per unit? Use expenditure approach of price elasticity of demand to answer this question.

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#### Solution

Given:

Initial Quantity Demanded=8units

Initial Price= Rs 7

We know,

`"Total Expenditure"="Price"xx"Quantity"`

⇒ Initial Total Expenditure=`7xx8`

Or , Inittial Total Expenditue=Rs 56

Since, `E_d`=1, this implies that total expenditure after price rises to Rs 8 remains the same

⇒ Final Total Expenditure= Rs 56

Or,`56=8xx"Quantity"'=7"units"`

Thus , When the price rises to Rs 8, the qunatity demanded falls to 7 units.

Concept: Elasticity of Demand

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