Price elasticity of demand of a good is (-) 1. The consumer spends Rs.50 on the good at the prevailing price.
Price elasticity of demand of a good is (-) 1. The consumer spends Rs.50 on the good at the prevailing price. When price changes, he buys 25 units. What is the new price? Use the total expenditure method of calculating price elasticity of demand to answer this question.
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Given, eD = - 1
In this case, when elasticity of demand is (-) 1, total expenditure will remain constant.
Given, Total expenditure = Rs.50
TE does not change
When quantity is 25 units price = 50/25= 2 per unit.
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