A consumer spends Rs. 100 on a good at Rs. 4 per unit. When its price falls by 25 per cent, the consumer spends Rs. 75 on the good. Calculate price elasticity of demand by percentage method.

Explanation

`{:("Initial Price (P) = 4","Initial Expenditure = 100","Initial Quantity (Q)"=(100)/(4)=25),("New Price "(P_(1))=,"New Expenditure = 75","New Quantity "(Q_(1))=("Exp.")/("Price")=(75)/(3)),(3[4-4xx(25)/(100)],,=25),(Delta P=(-)1,,Delta Q=0):}`
`PED=(Delta Q)/(Delta P)xx(P)/(Q)=(0)/((-)1)xx(4)/(25)=0`
ED is perfectly inelastic as quantity demanded does not change at all in response to change in price. Thus, its demand curve will be vertical/parallel to y-axis.