question_answer

  A consumer buys 8 units of a good at a price of Rs. 7 per unit. When price rises to Rs. 8 per unit he buys 7 units. Calculate price elasticity of demand through the expenditure approach. Comment upon the shape of demand curve based on this information.**

Answer:

Price (Rs.)	Q (Units)	Total Expenditure (Rs.)
7	8	56
8	7	56
According to expenditure method, since the total expenditure does not change, the elasticity of demand will be equal\[-1\]. In this case, the demand curve will be a rectangular hyperbola.