# 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. - Economics

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

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