Question

On the basis of information given below compare the price elasticities of good A and B.

(a) Good A

Price	Total expenditure (Rs)
4	20
5	30

(b) Good B

Price	Total expenditure(Rs)
3	15
4	24

Answer 1

(a)

Price	T.E	QD
4	20	5
5	30	6

E_P = ∆Q/∆P X P/ Q 

= 1/1 x 4/5 = 0.8

(b)

price	T.E	QD
3	15	5
4	24	6

E_P = ∆Q/∆P X P/Q

= 1/ 1 x 3/5 = 0.6

Demand for good A is more elastic than that of good B.