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A consumer spends Rs. 80 on purchasing a commodity when its price is Re. 1 per unit and spends Rs. 96 when the price is Rs. 2 per unit. Calculate the price elasticity of demand.
- a)0.2
- b)0.3
- c)0.4
- d)0.5
Correct answer is option 'C'. Can you explain this answer?
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Verified Answer
A consumer spends Rs. 80 on purchasing a commodity when its price is R...
Initial Total Expenditure (TEo)=Rs 80
Final Total Expenditure (TE1)=Rs 96
Initial Price (Po)=Rs 1
Final Price (P1)=Rs 2
Now, Quantity Q = TE/P
Qo = 80/1 = 80
Q1 = 96/2 = 48
Now,
Ed=(−)[Po/Qo] x [ΔQ/ΔP]
Ed=(−)1/80 x [48−80]/(2−1)
Ed=(−)1/80 x (−32/1)
Ed=(−)−0.4
Ed=0.4
Thus, the price elasticity of demand is 0.4.
Most Upvoted Answer
A consumer spends Rs. 80 on purchasing a commodity when its price is R...
Given data:
Price when the consumer spends Rs. 80 = Re. 1
Price when the consumer spends Rs. 96 = Rs. 2
Price elasticity of demand can be calculated using the following formula:
Price elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price)
To calculate the percentage change in quantity demanded, we can use the following formula:
Percentage change in quantity demanded = [(New quantity demanded - Old quantity demanded) / Old quantity demanded] x 100
To calculate the percentage change in price, we can use the following formula:
Percentage change in price = [(New price - Old price) / Old price] x 100
Calculating the percentage change in quantity demanded:
Old quantity demanded = Rs. 80 / Re. 1 = 80 units
New quantity demanded = Rs. 96 / Rs. 2 = 48 units
Percentage change in quantity demanded = [(48 - 80) / 80] x 100 = -40%
Calculating the percentage change in price:
Old price = Re. 1
New price = Rs. 2
Percentage change in price = [(2 - 1) / 1] x 100 = 100%
Substituting the values in the formula for price elasticity of demand:
Price elasticity of demand = (-40% / 100%) = -0.4
Since price elasticity of demand is always expressed as a positive value, we take the absolute value of the calculated answer, which is 0.4.
The correct option is (C) 0.4.
Price when the consumer spends Rs. 80 = Re. 1
Price when the consumer spends Rs. 96 = Rs. 2
Price elasticity of demand can be calculated using the following formula:
Price elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price)
To calculate the percentage change in quantity demanded, we can use the following formula:
Percentage change in quantity demanded = [(New quantity demanded - Old quantity demanded) / Old quantity demanded] x 100
To calculate the percentage change in price, we can use the following formula:
Percentage change in price = [(New price - Old price) / Old price] x 100
Calculating the percentage change in quantity demanded:
Old quantity demanded = Rs. 80 / Re. 1 = 80 units
New quantity demanded = Rs. 96 / Rs. 2 = 48 units
Percentage change in quantity demanded = [(48 - 80) / 80] x 100 = -40%
Calculating the percentage change in price:
Old price = Re. 1
New price = Rs. 2
Percentage change in price = [(2 - 1) / 1] x 100 = 100%
Substituting the values in the formula for price elasticity of demand:
Price elasticity of demand = (-40% / 100%) = -0.4
Since price elasticity of demand is always expressed as a positive value, we take the absolute value of the calculated answer, which is 0.4.
The correct option is (C) 0.4.
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A consumer spends Rs. 80 on purchasing a commodity when its price is Re. 1 per unit and spends Rs. 96 when the price is Rs. 2 per unit. Calculate the price elasticity of demand.a)0.2b)0.3c)0.4d)0.5Correct answer is option 'C'. Can you explain this answer?
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