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A consumer buys 20 units of good at a price of ₹5per unit . He incurs an expenditure of ₹120,whenhe buys 24 units . Calculate price elasticity of demand using percentage method . Comment upon the likely shape of demand curve based on this information.?
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A consumer buys 20 units of good at a price of ₹5per unit . He incurs ...
Calculating Price Elasticity of Demand and Shape of Demand Curve
Calculation of Price Elasticity of Demand:
Price Elasticity of Demand (PED) can be calculated using the following formula:
PED = [(Q2 - Q1) / ((Q1 + Q2) / 2)] / [(P2 - P1) / ((P1 + P2) / 2)]
where,
Q1 = initial quantity demanded (20 units)
Q2 = final quantity demanded (24 units)
P1 = initial price (₹5 per unit)
P2 = final price (unknown)
We know that the consumer incurs an expenditure of ₹120 when he buys 24 units of the good. Therefore, we can calculate the final price as follows:
Final Price (P2) = Total Expenditure / Final Quantity Demanded
= ₹120 / 24 units
= ₹5 per unit
Substituting the values in the formula, we get:
PED = [(24 - 20) / ((20 + 24) / 2)] / [(5 - 5) / ((5 + 5) / 2)]
= (4 / 22) / (0 / 10)
= 0
Interpretation of Price Elasticity of Demand:
The price elasticity of demand is zero, which means that the quantity demanded does not change with a change in price. This indicates that the demand for the good is perfectly inelastic.
Shape of Demand Curve:
The likely shape of the demand curve based on this information is a vertical line. This is because the PED is zero, which means that the quantity demanded does not change with a change in price. A vertical line indicates a perfectly inelastic demand, where the quantity demanded remains the same regardless of the price. This suggests that the consumers are willing to pay any price for the good, and the demand is not influenced by price changes.
Calculation of Price Elasticity of Demand:
Price Elasticity of Demand (PED) can be calculated using the following formula:
PED = [(Q2 - Q1) / ((Q1 + Q2) / 2)] / [(P2 - P1) / ((P1 + P2) / 2)]
where,
Q1 = initial quantity demanded (20 units)
Q2 = final quantity demanded (24 units)
P1 = initial price (₹5 per unit)
P2 = final price (unknown)
We know that the consumer incurs an expenditure of ₹120 when he buys 24 units of the good. Therefore, we can calculate the final price as follows:
Final Price (P2) = Total Expenditure / Final Quantity Demanded
= ₹120 / 24 units
= ₹5 per unit
Substituting the values in the formula, we get:
PED = [(24 - 20) / ((20 + 24) / 2)] / [(5 - 5) / ((5 + 5) / 2)]
= (4 / 22) / (0 / 10)
= 0
Interpretation of Price Elasticity of Demand:
The price elasticity of demand is zero, which means that the quantity demanded does not change with a change in price. This indicates that the demand for the good is perfectly inelastic.
Shape of Demand Curve:
The likely shape of the demand curve based on this information is a vertical line. This is because the PED is zero, which means that the quantity demanded does not change with a change in price. A vertical line indicates a perfectly inelastic demand, where the quantity demanded remains the same regardless of the price. This suggests that the consumers are willing to pay any price for the good, and the demand is not influenced by price changes.
Community Answer
A consumer buys 20 units of good at a price of ₹5per unit . He incurs ...
1st case :
Price -5₹ Demand - 20 units
2nd case :
Demand - 24 units
Expenditure - 120₹
Therefore , price = Expenditure/Demand
=120/24
=5₹
From case 1 and 2
∆Q= 4 and Q= 20
∆P= 0 and P= 5
Formula,
Ed=. ∆Q/Q × P/∆P
= 4/20 × 5/0
=1/0
=Infinity
The price elasticity in this case is said to be perfect elastic .
Also , the demand curve for this case is a horizontal straight line from the co-ordinates (20,5) to (24,5) and the slope of the demand curve is 0 (zero).
Price -5₹ Demand - 20 units
2nd case :
Demand - 24 units
Expenditure - 120₹
Therefore , price = Expenditure/Demand
=120/24
=5₹
From case 1 and 2
∆Q= 4 and Q= 20
∆P= 0 and P= 5
Formula,
Ed=. ∆Q/Q × P/∆P
= 4/20 × 5/0
=1/0
=Infinity
The price elasticity in this case is said to be perfect elastic .
Also , the demand curve for this case is a horizontal straight line from the co-ordinates (20,5) to (24,5) and the slope of the demand curve is 0 (zero).
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A consumer buys 20 units of good at a price of ₹5per unit . He incurs an expenditure of ₹120,whenhe buys 24 units . Calculate price elasticity of demand using percentage method . Comment upon the likely shape of demand curve based on this information.?
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A consumer buys 20 units of good at a price of ₹5per unit . He incurs an expenditure of ₹120,whenhe buys 24 units . Calculate price elasticity of demand using percentage method . Comment upon the likely shape of demand curve based on this information.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A consumer buys 20 units of good at a price of ₹5per unit . He incurs an expenditure of ₹120,whenhe buys 24 units . Calculate price elasticity of demand using percentage method . Comment upon the likely shape of demand curve based on this information.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A consumer buys 20 units of good at a price of ₹5per unit . He incurs an expenditure of ₹120,whenhe buys 24 units . Calculate price elasticity of demand using percentage method . Comment upon the likely shape of demand curve based on this information.?.
A consumer buys 20 units of good at a price of ₹5per unit . He incurs an expenditure of ₹120,whenhe buys 24 units . Calculate price elasticity of demand using percentage method . Comment upon the likely shape of demand curve based on this information.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A consumer buys 20 units of good at a price of ₹5per unit . He incurs an expenditure of ₹120,whenhe buys 24 units . Calculate price elasticity of demand using percentage method . Comment upon the likely shape of demand curve based on this information.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A consumer buys 20 units of good at a price of ₹5per unit . He incurs an expenditure of ₹120,whenhe buys 24 units . Calculate price elasticity of demand using percentage method . Comment upon the likely shape of demand curve based on this information.?.
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