Question

A consumer spends $Rs.1,000$ on a good priced at $Rs.10$ per unit. When its price falls by $20$ per cent, the consumer spends $Rs.800$ on the good. Calculate the price elasticity of demand by the percentage method.

Answer 1

Initial price $\left(P\right)=Rs.10$
Fall in price by $20$ per cent $=10\times \frac{20}{100}=Rs.2$
New price $\left(P_1\right)=Rs.10-Rs.2=Rs.8$

Price (Rs.)	Expenditure (Rs.)	Quantity Demanded (Units)
$10$	$1,000$	$\frac{1,000}{10}=100$
$8$	$800$	$\frac{800}{8}=100$

Percentage change in quantity demanded $=\frac{△Q}{Q}\times 100=\frac{100-100}{100}\times 100=\frac{0}{100}\times 100=0$
Price elasticity of demand $\left(E_d\right)=(-)\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$
$=(-)\frac{0}{20\%}$
$=0$
Price elasticity of demand $=0$ (zero).