Question

Shyam spent ₹ 5,000 on a commodity and bought 25 units of it. When its price changed, he spent ₹ 6,000 and bought 20 units. The elasticity of demand by total expenditure method will be ______.

Options

• E_d < 1

• E_d = 1

• E_d > 1 

• E_d = 0

Answer 1

Shyam spent ₹ 5,000 on a commodity and bought 25 units of it. When its price changed, he spent ₹ 6,000 and bought 20 units. The elasticity of demand by total expenditure method will be E_d < 1.

Explanation:

The initial price is ₹ 200 (₹ 5,000 ÷ 25), and the new price is ₹ 300 (₹ 6,000 ÷ 20). Price and total expenditure both rose, which indicates inelastic demand, or E_d < 1.