Question

Price elasticity of demand is (-1). The consumer buys 50 units at price Rs 2 per unit. How many units will he buy if price rises to Rs 4 per unit? Answer this with the help of total expenditure method of determining price elasticity of demand.

Answer 1

$E_D=(-)1$

$\begin{array}{cc}\text{Price}& \text{Quantity demanded}\\ 2& 50\\ 4& ?\end{array}$

According to expenditure method, elasticity of demand is equal when prices change (rises or falls), but there is no change in total expenditure.

When price is Rs 2, total expenditure is Rs 100,

Therefore at price 4, total expenditure will also be 100.

Thus, number of units that consumer consumes at price 4 $=\frac{100}{4}=25\text{units}$