Question

When the price of a good falls from Rs.10 to Rs.8 per unit, its demand rises from 20 units to 24 units. What can you say about price elasticity of demand for the good through the expenditure approach?

Answer 1

Given P = 10, P₂ = 8, Q = 20, Q₁ = 24

                   Total Expenditure Method

P	Q	Total Expenditure
10	20	200
8	24	192

As with the fall in price total expenditure also falls, price elasticity, of demand is less than 1. Demand is inelastic.