# When Price of Good is Rs7 per Unit a Consumer Buys 12 Units. When Price Falls to Rs6 per Unit He Spends Rs72 on the Good. Calculate Price Elasticity of Demand by Using the Percentage Method. Comment on the Likely Shape of Demand Curve Based on this Measure of Elasticity. - Economics

When price of good is Rs7 per unit a consumer buys 12 units. When price falls to Rs6 per unit he spends Rs72 on the good. Calculate price elasticity of demand by using the percentage method. Comment on the likely shape of demand curve based on this measure of elasticity.

#### Solution

 Quantity(Q) Price(P) TotalExpenditure(TE) 12 Rs7 12 Rs6 72

Given that
PricexQuantity=Total expenditure

6 x Quantity=12
or, Quantity=12

E_d="Percentage change in quantity"/"Percentage change in price"

Percentage change in quantity=(DeltaQ)/Qxx100=(12-12)/12xx100=0

Percentage change in price(DeltaP)/Pxx100=(6-7)/7xx100=14.28

By substituting the values in the formula of price elasticity of demand,weget

E_d=0/14.28=0

Thus, the demand is perfectly inelastic, then the demand curve is a vertical straight line parallel to the price-axis.

Concept: Measurement of Elasticity of Demand
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