Price of a good fails from Rs 20 per unit to Rs 10 per unit. As per results, its demand rises from 80 units to 100 units. What can you say about the elasticity of demand? Use the Total Expenditure method to justify your answer.

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Solution

Initial expenditure: Initial price * initial quantity demand = 20 * 80 =1600
New expenditure: New price * new quantity demand = 10 * 100 =1000
Total expenditure has fallen from 1600 to 1000. Therefore elasticity of demand is less than one since price and total expenditure are positively related.

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Price of a good fails from Rs 20 per unit to Rs 10 per unit. As per results, its demand rises from 80 units to 100 units. What can you say about the elasticity of demand? Use the Total Expenditure method to justify your answer.

Initial expenditure: Initial price * initial quantity demand = 20 * 80 =1600New expenditure: New price * new quantity demand = 10 * 100 =1000Total expenditure has fallen from 1600 to 1000. Therefore elasticity of demand is less than one since price and total expenditure are positively related.

Initial expenditure: Initial price * initial quantity demand = 20 * 80 =1600
New expenditure: New price * new quantity demand = 10 * 100 =1000
Total expenditure has fallen from 1600 to 1000. Therefore elasticity of demand is less than one since price and total expenditure are positively related.