A cossumer spend ₹ 1,000 on a good priced at ₹ 10 per unit. When price falls by 20 percent , the consumer spends ₹ 800 on the good. Calculate the price elasticity of demand by the percentage method.

Explanation

`{:("Initial Price (P) = 10","Initial Expenditure = 1000","Initial Quantity (Q)"=(1000)/(10)=100),("New Price "(P_(1))=,"New Expenditure = 800","New Quantity "(Q_(1))=("Exp.")/("Price")=(800)/(8)=100),(10-10xx(20)/(100)=8,,),(Delta P=(-)2,,Delta Q=0):}`
`PED=(Delta Q)/(Delta P)xx(P)/(Q)=(0)/((-)2)xx(10)/(100)=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.
Numerical Problems to Calculate Price or Quantity (When Price Elasticity of Demand is given).