question_answer

A consumer buys 10 units of a commodity at a price of Rs. 10 per unit. He incurs an expenditure of Rs. 200 on buying 20 units. Calculate price elasticity of demand by the percentage method. Comment upon the shape of demand curve based on this information.

Answer:

Price (Rs.)	Quantity (units)	Total Expenditure (Rs.)
10	10	100
10	20	200
P = Rs. 10, \[{{P}_{1}}\]= Rs. 10, Q = 10, \[{{Q}_{1}}\]= 20
\[\Delta P=10-10=0,\,\,\,\,\,\,\,\Delta Q=20-10=10\]
\[{{E}_{d}}=\frac{\Delta Q}{\Delta P}\,\,\times \,\,\frac{P}{Q}\,\,=\,\,\frac{10}{0}\,\,\times \,\,\frac{10}{10}=\infty \,\,(\text{Infinity})\]
Since the price remains the same the shape of demand curve will be perfectly elastic. Demand Curve will be parallel to x-axis.