A consumer spends ₹ 80 on a commodity when price is ₹ 1 per unit.… - Vidyadip

Question

A consumer spends ₹ $80$ on a commodity when price is ₹ $1$ per unit. If the price increases by ₹ $1$, what would be his expenditure. $PED = -0.4?$

✓

Answer

Initial Price $(P) = 1$	Initial Expenditure $= 80$	Initial Quantity (Q) $=\frac{\text{Exp.}}{\text{Price}}=80$
New Price $(P_1) = 2$	New Expenditure $= ?$	New Quantity $(Q_1) = ?$
$\Delta \text{P} = 1$		$\Delta\text{Q} = ?$

$\text{PED}=\frac{\Delta\text{Q}}{\Delta\text{P}}\times\frac{\text{P}}{\text{Q}}$
$-0.4=\frac{\Delta\text{Q}}{1}\times\frac{1}{80}$
$-32=\Delta \text{Q}$
As New Price is increasing from 1 to 2, quantity demanded must decrease by $\Delta\text{Q}.$
New Quantity = Initial Quantity + $\Delta\text{Q}=80+(-32)=48$
At Price = 2, Quantity demanded = 48.
The Expenditure at this Price $= P \times Q = 2 \times 48 = 96$

Need a full question paper?

Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.

Start Generating Free

Explore more

More "6 Marks Question" from Theory of consumer behaviour→Theory of consumer behaviour — all question types→Economics STD 11 Commerce question papers→CBSE Board STD 11 Commerce question papers→CBSE Board question paper generator→

Similar questions

Find out the missing value of the variate for the following distribution whose mean is 31.87.

Value (X)	12	20	27	33	?	54
Frequency (f)	8	16	48	90	30	8

Show diagrammatically the conditions for consumer's equilibrium, in Hicksian analysis of demand.

Market for a good is in equilibrium. There is 'increase' in supply of the good. Explain the chain of effects of this change. Use diagram.

Explain the concept of marginal rate of substitution. Explain the reaction of the consumer when marginal rate of substitution is higher than the ratio of prices.

Explain why will a producer not be in equilibrium if the conditions of equilibrium are not met.

Explain the following features of perfect competition:

Large number of buyers and sellers.
Homogeneous products.

Examine the effect of (a) fall in the own price of good X and (b) rise in tax rate on good X, on the supply curve. Use diagrams.

Explain with the help of diagram the effect of the following changes on the demand of a commodity.

A rise in the price of a complementary good.
A rise in the price of substitute good.

Using indifference curves approach, explain the conditions of consumer’s equilibrium.

Define equilibrium price of a commodity. How is it determined? Explain with the help of a schedule.