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    Question

    With the rise in price from ₹ 8 to ₹ 14. Total

    expenditure on the commodity rises by 40% and becomes ₹ 1,120. Calculate the price elasticity of demand.
    A (-)3 Correct Answer Incorrect Answer
    B (-)0.267 Correct Answer Incorrect Answer
    C (-)0.25 Correct Answer Incorrect Answer
    D (-)0.5 Correct Answer Incorrect Answer

    Solution

    New Price, P1 = 14 New quantity, Q1 = 1120/14 = 80 Old total expenditure, X X+ 40% of X = 1120 X = 800 Old Price, Po = 8 Old Quantity, Qo = 800/8 = 100 Therefor, change in quantity = -20 Change in price = 6 Price elasticity of demand = dQ/dP * Po/Q0 = -20/6 * 8/100 = -0.267

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