It is true that measure of price elasticity of demand for a normal good carrier minus sign because there is an inverse relationship between P and Q. Whereas there is a positive relationship between price and quantity supplied. Therefore, price elasticity of supply carries plus sign.
ed = -0.2 [Note that ed = -2. Hence we need not prefix ed to (-2)]
Percentage change in price = 5%
ed = (percentage change in demand)/(percentage change in price)
0.2 = (percentage...
Since Ep is 0.2, that is less than one or inelastic demand, then an increase in price of good will result an increase in the expenditure. Because in case of...
(a) Related goods are of two types, Substitute goods and Complementary goods.
(i) In case of substitute goods: When price of one commodity falls, demand for other commodity declines, e.g.,...
Availability of substitutes makes it possible for the consumer to switch from one commodity to the other. Thus, if price of coffee increases, the consumers may switch over to tea,...
exD = -(2); ed = -(3)
The coefficient of price elasticity of demand is always negative due to the law of demand which states that there is an inverse relation...
Price (Rs.)
Quantity Demanded (Units)
TE (Rs.)
2
50
100
4
25
100
Given, Ed= -1.
In this case, when elasticity of demand is (-)1, total expenditure will remain constant.
Total Expenditure (TE) =2 x 50 = Rs.100
TE...
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...
(i) Number of Substitute Available for the Good: Demand for goods which have close substitutes (like tea and coffee) is relatively more elastic because, when price of such good rises,...
