Question

Price of a product falls from Rs.10 to Rs.9 per unit. As a result, its demand rises from 9 units to 10 units. Calculate price elasticity of demand using expenditure approach.

Answer 1

Given P = 10, P1 = 9, Q = 9, Q1 = 10

            **Total Expenditure**

| P | Q | Total Expenditure (P xQ) |
| 10 | 9 | 90 |
| 9 | 10 | 90 |

Since total expenditure is constant, elasticity of demand is one.