SSC CGL Exam > SSC CGL Videos > SSC CGL Tier 2 - Study Material, Online Tests, Previous Year > Total Expenditure Method to Calculate Elasticity of Demand - Economics
Total Expenditure Method to Calculate Elasticity of Demand - Economics Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
FAQs on Total Expenditure Method to Calculate Elasticity of Demand - Economics Video Lecture - SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
| 1. What is the total expenditure method used to calculate the elasticity of demand? |  |
Ans. The total expenditure method is a technique used in economics to calculate the elasticity of demand. It involves comparing the percentage change in the total expenditure of a good or service with the percentage change in its price. By dividing the percentage change in total expenditure by the percentage change in price, we can determine the elasticity of demand for that particular product.
| 2. How is the elasticity of demand calculated using the total expenditure method? | |
Ans. To calculate the elasticity of demand using the total expenditure method, we follow these steps:
1. Collect data on the initial price and quantity demanded of the product.
2. Collect data on the new price and quantity demanded after a change in price.
3. Calculate the percentage change in price by dividing the difference between the new and initial price by the initial price.
4. Calculate the percentage change in quantity demanded by dividing the difference between the new and initial quantity demanded by the initial quantity demanded.
5. Divide the percentage change in quantity demanded by the percentage change in price to obtain the elasticity of demand.
| 3. Why is the total expenditure method used to calculate elasticity of demand? | |
Ans. The total expenditure method is used to calculate the elasticity of demand because it takes into account both the price and quantity changes of a product. By examining the percentage changes in both price and quantity demanded, we can determine how sensitive the demand for a product is to price changes. This method provides a comprehensive measure of elasticity that considers the overall impact on consumers' total expenditure.
| 4. What does a positive elasticity of demand indicate when using the total expenditure method? | |
Ans. A positive elasticity of demand, when using the total expenditure method, indicates that the product is a normal good. This means that as the price of the product increases, the total expenditure on it also increases. Conversely, when the price decreases, the total expenditure decreases. This positive relationship suggests that consumers are responsive to changes in price and adjust their purchasing behavior accordingly.
| 5. Can the total expenditure method be used to calculate elasticity of demand for all types of goods? | |
Ans. Yes, the total expenditure method can be used to calculate the elasticity of demand for all types of goods. However, it is particularly useful for goods that constitute a significant portion of consumers' budgets. For goods with elastic demand, a small change in price can lead to a proportionately larger change in total expenditure. For goods with inelastic demand, a change in price has a relatively smaller impact on total expenditure. Therefore, the total expenditure method provides insights into how consumers' spending patterns change in response to price fluctuations.
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