Arun spends 200 rupees on good X irrespective of its price whereas Varun buys 10 units of Good X irrespective of its price. The respective values of the price elasticity of demand for Good X for both the consumers is
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → 1 and 0
For Arun:
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Arun spends ₹200 on Good X irrespective of its price.
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This means his total expenditure (P × Q) is constant.
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Therefore, when the price increases, he buys less quantity, and when price decreases, he buys more quantity in such a way that P × Q = constant.
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This is the case of unitary elastic demand, where ∣Ed∣=1
For Varun:
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Varun buys 10 units of Good X irrespective of its price.
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His quantity demanded remains constant, no matter how the price changes.
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This indicates perfectly inelastic demand, where ∣Ed∣=0