Price Elasticity of Demand Calculation
This solution determines the Price Elasticity of Demand (PED) using the provided consumer spending and price data.
Initial Calculations
Initial Quantity ($Q_1$) = Expenditure / Price = ₹ 240 / ₹ 15 = 16 units.
Final Quantity ($Q_2$) = Expenditure / Price = ₹ 300 / ₹ 20 = 15 units.
Change in Price ($\Delta P$) = Final Price ($P_2$) - Initial Price ($P_1$) = ₹ 20 - ₹ 15 = ₹ 5.
Change in Quantity ($\Delta Q$) = Final Quantity ($Q_2$) - Initial Quantity ($Q_1$) = 15 units - 16 units = -1 unit.
Elasticity Formula and Result
The Price Elasticity of Demand (PED) measures the responsiveness of quantity demanded to a change in price. The formula is:
$ PED = \left| \frac{\% \text{ Change in Quantity Demanded}}{\% \text{ Change in Price}} \right| $
This can also be written using the initial values as:
$ PED = \left| \frac{\Delta Q / Q_1}{\Delta P / P_1} \right| $
Substituting the calculated values:
$ PED = \left| \frac{-1 / 16}{5 / 15} \right| $
The calculated Elasticity of Demand is:
$ \frac{3}{20} $
Important Questions from Demand analysis
The supply curve of cars is expected to shift rightwards with:
i. An increase in the price of cars
ii. A decrease in fuel prices
The supply curve of a normal good is ____________ sloping. It depicts ___________ on the x-axis and ___________ on the y-axis.
The demand curve gives the quantity demanded by the consumer at each ____________.
Which of the following statements is INCORRECT in the context of demand function?
Marginal Product is defined as:
