A consumer spend Rs.80 on purchasing a commodity when it's priceis Rs....
**Price Elasticity of Demand:**
The price elasticity of demand measures the responsiveness of the quantity demanded of a commodity to a change in its price. It indicates how sensitive the demand for a product is to changes in its price. The formula for price elasticity of demand is:
Price elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price)
**Given Information:**
- Price of the commodity = Rs.1 per unit
- Price of the commodity = Rs.2 per unit
- Expenditure at the first price = Rs.80
- Expenditure at the second price = Rs.96
**Calculating the quantities demanded:**
To calculate the price elasticity of demand, we need to find the quantities demanded at both price levels.
- At a price of Rs.1 per unit, the expenditure is Rs.80. This means that the consumer bought 80 units of the commodity (80 = 80 x 1).
- At a price of Rs.2 per unit, the expenditure is Rs.96. This means that the consumer bought 48 units of the commodity (96 = 48 x 2).
**Calculating the percentage change in quantity demanded:**
To calculate the percentage change in quantity demanded, we use the formula:
Percentage change in quantity demanded = (Change in quantity demanded / Initial quantity demanded) x 100
- Initial quantity demanded = 80 units
- Change in quantity demanded = 48 units - 80 units = -32 units (negative sign indicates a decrease in quantity demanded)
Percentage change in quantity demanded = (-32 units / 80 units) x 100 = -40%
**Calculating the percentage change in price:**
To calculate the percentage change in price, we use the formula:
Percentage change in price = (Change in price / Initial price) x 100
- Initial price = Rs.1 per unit
- Change in price = Rs.2 per unit - Rs.1 per unit = Rs.1 per unit
Percentage change in price = (Rs.1 / Rs.1) x 100 = 100%
**Calculating the price elasticity of demand:**
Using the formula for price elasticity of demand:
Price elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price)
Price elasticity of demand = (-40%) / (100%) = -0.4
**Interpreting the price elasticity of demand:**
The calculated price elasticity of demand value (-0.4) indicates an inelastic demand for the commodity. This means that the quantity demanded is not very responsive to changes in price. A price elasticity of demand less than 1 (in absolute value) suggests that the commodity is inelastic, while a value greater than 1 suggests that the commodity is elastic.
In this case, the price elasticity of demand is negative, indicating an inverse relationship between price and quantity demanded. As the price increases, the quantity demanded decreases, and vice versa. However, since the price elasticity of demand is less than 1, the decrease in quantity demanded is proportionately smaller than the increase in price.
Overall, the commodity in question has an inelastic demand, meaning that consumers are not very sensitive to changes in its price.
A consumer spend Rs.80 on purchasing a commodity when it's priceis Rs....
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