Assume the price elasticity of demand for a good is equal to 1. When the price is Rs 5, the demand in the market is 200 units. What is the quantity demanded if the price falls to Rs 2?
If the price elasticity of demand for a good is unitary, then the total expenditure on that good remains unchanged with a change in the price of that good.
When the price of a good is Rs 5,
Total expenditure = Rs 5 * 200 units = Rs 1000
When the price decreases to Rs 2, the total expenditure would remain unchanged.
Therefore, Rs 1000 = 2 * Y, where Y is the changed quantity.
Y= 1000 / 2 = 500 units.
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