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# A Consumer Spends Rs 60 on a Good Priced at Rs 5 per Unit. When Price Rises by 20 Percent, the Consumer Continues to Spend Rs 60 on the Good. Calculate the Price Elasticity of Demand by Percentage Method. - CBSE (Arts) Class 12 - Economics

#### Question

A consumer spends Rs 60 on a good priced at Rs 5 per unit. When price rises by 20 percent, the consumer continues to spend Rs 60 on the good. Calculate the price elasticity of demand by percentage method.

#### Solution

Given that

Actual Total Expenditure (TE0) Rs 60

Final Total Expenditure (TE1) Rs 60

Actual Price (P0) Rs 5

Percentage change in price = -20%

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

-20 = (P_1 - 5)/5 xx 100

- 100/100 = P_1 - 5

P_1 = 4

 Price (P) Total Expenditure (TE) = Price (P) × Quantity (Q) Quantity (Q) = "TE"/P P0 = Rs 5 TE0 = Rs 60 Q0 = 1 P1 = Rs 4 TE1 = Rs 60 Q1= 15

Therefore,

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

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

Ed = ((Q_1 -Q_0)/Q_0 xx 100)/(-20)

Ed = (-) ((15 - 12)/12 xx 100)/(-20)

Ed = (-) 25/(-20)`

∴ Ed 1.25

Thus, the price elasticity of demand is 1.25

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#### APPEARS IN

Solution A Consumer Spends Rs 60 on a Good Priced at Rs 5 per Unit. When Price Rises by 20 Percent, the Consumer Continues to Spend Rs 60 on the Good. Calculate the Price Elasticity of Demand by Percentage Method. Concept: Elasticity of Demand.
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