The price of a good rises from Rs 10 to Rs 11, and the quantity demanded falls from 100 units to 92 units. What is the change in the expenditure on the good, and what is the price elasticity of demand (absolute value)?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rises by Rs 12; 0.8
Given:
Price: Rs 10 to Rs 11
Quantity demanded: 100 units to 92 units
Expenditure = price × quantity, and price elasticity of demand = percentage change in quantity ÷ percentage change in price.
Old expenditure = 10 × 100 = Rs 1,000
New expenditure = 11 × 92 = Rs 1,012
Change in expenditure = 1,012 − 1,000 = Rs 12 (a rise)
Percentage change in quantity = (92 − 100) / 100 × 100 = −8%
Percentage change in price = (11 − 10) / 10 × 100 = 10%
|eD| = 8 / 10 = 0.8
Demand is inelastic, so expenditure moves in the same direction as price.
NCERT (2026-27): “2.6 Elasticity of Demand Demands for some goods are very responsive to price changes while demands for certain others are not so responsive to price changes. Price elasticity of demand is a measure of the responsiveness of the demand for a good to changes in its price. Price elasticity of demand for a good is defined as the percentage change in demand for the good divided by the percentage change in its price. …” “2.6.3 Elasticity and Expenditure The expenditure on a good is equal to the demand for the good times its price. … The expenditure on the good would change in the same direction as the price change if and only if the percentage change in quantity is less than the percentage change in price, i.e., if the good is price inelastic (see rows 1 and 5 in table 2.5). …” |