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Theory Of Consumer Behaviour

Question

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8 units of a good are demanded at a price of Rs. 7 per unit. Price elasticity of demand is (-)1. How many units will be demanded if the price rises to Rs. 8 per unit? Use expenditure approach of price elasticity of demand to answer this question.

Solution

Here the price elasticity of demand is (-1). In unitary elastic, quantity demanded changes by exactly the same percentage as price does.
Here number of units initially demanded is 8 @ Rs 7 per unit.
Total price =8*7 = 56 Rs
If the price rise to Rs 8 per unit with a price elasticity of -1, the quantity demanded will be 56/8 = 7 units.

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