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Theory of consumer behaviour — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsTheory of consumer behaviour3 Marks
Question
A consumer spends ₹ 80 on a commodity when price is ₹ 1 per unit. If the price increases by ₹ 1, his expenditure becomes ₹ 96. Comment on PED.
✓

Answer

Initial Price (P) = 1

Initial Expenditure = 80

Initial DD (Q) $\frac{80}{1}=80$

New Price (P1) = 2

New Expenditure = 96

New DD (Q1) $=\frac{96}{2}=48$

$\Delta \text{P}=1$

 

$\Delta \text{Q}=32$

$\text{PED}=\frac{\Delta\text{Q}}{\Delta\text{P}}\times\frac{\text{P}}{\text{Q}}$

$=\frac{(-)32}{1}\times \frac{1}{80}=(-)\frac{4}{10}$

$=(-)0.4$

Negative Sign of ED indicates the inverse relationship between price and quantity demanded.

PED = 0.4 [Less than unitary elastic demand or inelastic demand]

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