Question

On the basis of the following schedule, calculate price elasticity of demand by percentage method.

$\begin{array}{cc}\text{Price per unit (Rs)}& \text{Total expenditure (Rs)}\\ 10& 180\\ 9& 162\end{array}$

Answer 1

$\begin{array}{ccc}\text{Price (P)}& \text{Total expenditure}& \text{Quantity demanded}\\ \text{(Rs)}& \text{(TE) (Rs)}& \left(\frac{\text{TE}}{\text{P}}\right)\text{(units)}\\ 10& 180& [180÷10]18\\ 9& 162& [162÷9]18\end{array}$

$\Delta P=9-10=-1,\Delta Q=18-18=0$

Percentage Change in Quantity Demanded

$=\frac{\Delta Q}{Q}\times 100=\frac{0}{18}\times 100=0$

Percentage Change in Price

$=\frac{\Delta P}{P}\times 100=\frac{1}{100}\times 100=Rs.10$

$E_d=\frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Price}}$

$=\frac{0}{10}=0$

$E_d=0$ (Perfectly inelastic demand)