question_answer

A consumer buys 14 units of a good at a price of Rs. 8 per unit. At price Rs. 7 per unit he spends Rs. 98 on the good. Calculate price elasticity of demand by the percentage method. Comment upon the shape of demand curve based on this information.

Answer:

Price (Rs.)	Q (Units)	Total Expenditure (Rs.)
8	14	112
7	14	98
P = 8, \[{{P}_{1}}\]= 7, = 14, \[{{Q}_{1}}\]= 14
\[\Delta P~=78=1,\,\,\,\,\Delta Q=1414=0\]
\[{{E}_{d}}=\frac{\Delta Q}{\Delta P}\,\,\times \,\,\frac{P}{Q}=\frac{0}{-1}\,\,\times \,\,\frac{8}{14}=0\]
Therefore, the shape of demand curve will be perfectly inelastic.