A consumer spends Rs.80 on purchasing a commodity when its price is Rs...
Introduction:
Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a commodity to a change in its price. It helps in understanding how sensitive the demand for a product is to changes in its price. In this case, we need to calculate the price elasticity of demand based on the given information.
Given:
Price when quantity demanded is 1 unit (P1) = Rs.1
Price when quantity demanded is 2 units (P2) = Rs.2
Expenditure when price is Rs.1 (E1) = Rs.80
Expenditure when price is Rs.2 (E2) = Rs.96
Calculating Quantity Demanded:
To calculate the quantity demanded, we can divide the total expenditure by the price of the commodity. Using the given information, we can calculate the quantity demanded at each price level.
Quantity demanded at P1 = E1 / P1 = 80 / 1 = 80 units
Quantity demanded at P2 = E2 / P2 = 96 / 2 = 48 units
Calculating Percentage Change in Quantity Demanded:
To calculate the percentage change in quantity demanded, we can use the following formula:
Percentage change in quantity demanded = ((New quantity demanded - Initial quantity demanded) / Initial quantity demanded) * 100
Using the formula, we can calculate the percentage change in quantity demanded.
Percentage change in quantity demanded = ((48 - 80) / 80) * 100 = (-32 / 80) * 100 = -40%
Calculating Percentage Change in Price:
To calculate the percentage change in price, we can use the following formula:
Percentage change in price = ((New price - Initial price) / Initial price) * 100
Using the formula, we can calculate the percentage change in price.
Percentage change in price = ((2 - 1) / 1) * 100 = 1 * 100 = 100%
Calculating Price Elasticity of Demand:
Price elasticity of demand can be calculated using the formula:
Price elasticity of demand = (Percentage change in quantity demanded / Percentage change in price)
Using the values calculated above, we can substitute them into the formula.
Price elasticity of demand = (-40% / 100%) = -0.4
Interpretation:
The price elasticity of demand is -0.4, which indicates an inelastic demand. Inelastic demand means that the quantity demanded is not very responsive to changes in price. A negative price elasticity value indicates that the quantity demanded decreases as the price increases.
Conclusion:
The price elasticity of demand for the commodity is -0.4, indicating an inelastic demand. This means that the quantity demanded is not very responsive to changes in price.
A consumer spends Rs.80 on purchasing a commodity when its price is Rs...
0.2 is the ans
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