CBSE (Arts) Class 12CBSE
Share
Notifications

View all notifications

A consumer spends Rs 1,000 on a good priced at Rs10 per unit. When its price falls by 20 percent, the consumer spends Rs800 on the good. Calculate the price elasticity of demand by the Percentage method - CBSE (Arts) Class 12 - Economics

Login
Create free account


      Forgot password?

Question

A consumer spends Rs 1,000 on a good priced at Rs10 per unit. When its price falls by 20 percent, the consumer spends Rs800 on the good. Calculate the price elasticity of demand by the Percentage method

Solution

Given:
Actual Total Expenditure (TE0) Rs 1000

Change in Total Expenditure (TE1) Rs 800

Actual Price (P0) Rs 10

Percentage change in price = -20

Percentage change in price = `(P_1 - P_0)/P_0 xx 100`

`-20 = (P_1 - 10)/10 xx 100`

`(-200)/100 = P_1 - 10`

`P_1 = 8`

Therefore,

Price (P) Total Expenditure (TE) = Price (P) × Quantity (Q) Quantity (Q = `"TE"/P`
P0 = Rs 10 TE0 = Rs 1000 Q0 = 100
P1 = Rs 8 TE1 = Rs 80 Q1 = 100

Ed = (-) `"Percentage change in quantity demaded"/"Percentage change in price"`

Ed = (-) `("Changeindemand"/"Actualdemand" xx 100)/(-20)`

Ed = (-) `((Q_1 - Q_2)/100 xx 100)/(-20)`

Ed = (-) `((100 - 100)/100 xx 100)/(-20)`

∴ Ed = 0

Thus, the price elasticity of demand is 0.

  Is there an error in this question or solution?
Solution A consumer spends Rs 1,000 on a good priced at Rs10 per unit. When its price falls by 20 percent, the consumer spends Rs800 on the good. Calculate the price elasticity of demand by the Percentage method Concept: Elasticity of Demand.
S
View in app×