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A Consumer Buys 27 Units of a Good at a Price of Rs 10 per Unit. When the Price Falls to Rs 9 per Unit, the Demand Rises to 30 Units. What Can You Say About Price Elasticity of Demand of the Good Through the 'Expenditure Approach'? - Economics

A consumer buys 27 units of a good at a price of Rs 10 per unit. When the price falls to Rs 9 per unit, the demand rises to 30 units. What can you say about price elasticity of demand of the good through the 'expenditure approach'?

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Solution

Given that

`Q_1` = 27

`Q_2`= 30

`P_1` = Rs 10

`P_2` = Rs 9

Therfore

Total initial expenditure = `Q_1 xx P_1 = 270`

Total final expenditure = `Q_2 xx P_2 = 270`

As there is fall in the price of good, the total expenditure remains constant, so it implies that demand for the good is unitary elastic i.e. |ed| = 1.

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