When the price of a good rises from Rs.10 to RS.12 per unit, its demand falls from 25 units to 20 units.
When the price of a good rises from Rs.10 to RS.12 per unit, its demand falls from 25 units to 20 units. What can you say about price elasticity of demand of the good through the "expenditure approach"?
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Given, P = 10, P1 = 12, Q = 25, Q1 = 20
Total Expenditure Method
| P | Q | Total Expenditure (P x Q) |
| 10 | 25 | 250 |
| 12 | 20 | 240 |
Since with rise in price total expenditure on the good falls, the demand for the good is elastic, i.e., greater than one (Ed > 1).
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