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A consumer spends Rs. 80 on a commodity when its price is Rs. 1 per unit and spends Rs. 96 when the price rises to Rs. 2 per unit. Calculate the price elasticity coefficient of demand for the commodity.?
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A consumer spends Rs. 80 on a commodity when its price is Rs. 1 per un...
Calculation of Price Elasticity Coefficient of Demand
To calculate the price elasticity coefficient of demand, we need to use the formula:
Price Elasticity of Demand = (% change in quantity demanded) / (% change in price)
We can calculate the % change in quantity demanded as follows:
% Change in Quantity Demanded = (New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded x 100%
When the price of the commodity was Rs. 1, the consumer spent Rs. 80, which means the quantity demanded was 80 units. When the price increased to Rs. 2, the consumer spent Rs. 96, which means the quantity demanded was 48 units.
% Change in Quantity Demanded = (48 - 80) / 80 x 100% = -40%
We can calculate the % change in price as follows:
% Change in Price = (New Price - Old Price) / Old Price x 100%
% Change in Price = (2 - 1) / 1 x 100% = 100%
Now we can calculate the price elasticity coefficient of demand:
Price Elasticity of Demand = (% change in quantity demanded) / (% change in price)
Price Elasticity of Demand = (-40%) / (100%) = -0.4
Interpretation of Price Elasticity Coefficient of Demand
The price elasticity coefficient of demand is -0.4, which means that the commodity is inelastic. This means that the change in price has a smaller effect on the quantity demanded. In this case, when the price doubled, the quantity demanded decreased by only 40%. This suggests that the commodity is a necessity or has few substitutes.
To calculate the price elasticity coefficient of demand, we need to use the formula:
Price Elasticity of Demand = (% change in quantity demanded) / (% change in price)
We can calculate the % change in quantity demanded as follows:
% Change in Quantity Demanded = (New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded x 100%
When the price of the commodity was Rs. 1, the consumer spent Rs. 80, which means the quantity demanded was 80 units. When the price increased to Rs. 2, the consumer spent Rs. 96, which means the quantity demanded was 48 units.
% Change in Quantity Demanded = (48 - 80) / 80 x 100% = -40%
We can calculate the % change in price as follows:
% Change in Price = (New Price - Old Price) / Old Price x 100%
% Change in Price = (2 - 1) / 1 x 100% = 100%
Now we can calculate the price elasticity coefficient of demand:
Price Elasticity of Demand = (% change in quantity demanded) / (% change in price)
Price Elasticity of Demand = (-40%) / (100%) = -0.4
Interpretation of Price Elasticity Coefficient of Demand
The price elasticity coefficient of demand is -0.4, which means that the commodity is inelastic. This means that the change in price has a smaller effect on the quantity demanded. In this case, when the price doubled, the quantity demanded decreased by only 40%. This suggests that the commodity is a necessity or has few substitutes.
Community Answer
A consumer spends Rs. 80 on a commodity when its price is Rs. 1 per un...
P1 = 1 , Q1 = Expenditure/ P1 = 80/1 = 80
P2 = 2, Q2 = Expenditure/P2 = 96/2 =48
Coefficient of price elasticity
= Q2- Q1/Q2+Q1 × P2+P1/P2-P1
= 48 - 80/48+80 × 3/1
= -32/128 × 3
= -0.75
P2 = 2, Q2 = Expenditure/P2 = 96/2 =48
Coefficient of price elasticity
= Q2- Q1/Q2+Q1 × P2+P1/P2-P1
= 48 - 80/48+80 × 3/1
= -32/128 × 3
= -0.75
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A consumer spends Rs. 80 on a commodity when its price is Rs. 1 per unit and spends Rs. 96 when the price rises to Rs. 2 per unit. Calculate the price elasticity coefficient of demand for the commodity.?
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A consumer spends Rs. 80 on a commodity when its price is Rs. 1 per unit and spends Rs. 96 when the price rises to Rs. 2 per unit. Calculate the price elasticity coefficient of demand for the commodity.? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A consumer spends Rs. 80 on a commodity when its price is Rs. 1 per unit and spends Rs. 96 when the price rises to Rs. 2 per unit. Calculate the price elasticity coefficient of demand for the commodity.? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A consumer spends Rs. 80 on a commodity when its price is Rs. 1 per unit and spends Rs. 96 when the price rises to Rs. 2 per unit. Calculate the price elasticity coefficient of demand for the commodity.?.
A consumer spends Rs. 80 on a commodity when its price is Rs. 1 per unit and spends Rs. 96 when the price rises to Rs. 2 per unit. Calculate the price elasticity coefficient of demand for the commodity.? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A consumer spends Rs. 80 on a commodity when its price is Rs. 1 per unit and spends Rs. 96 when the price rises to Rs. 2 per unit. Calculate the price elasticity coefficient of demand for the commodity.? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A consumer spends Rs. 80 on a commodity when its price is Rs. 1 per unit and spends Rs. 96 when the price rises to Rs. 2 per unit. Calculate the price elasticity coefficient of demand for the commodity.?.
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