LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Economics doubt-cpt

harish ragav (student-IPCC) (407 Points)

24 December 2012

When the total expenditure by the consumer on commodity due to change in its price remains the same; the elasticity of demand for the commodity wil (a) 0 (b) 1 (c) >1 (d) <1 pls eplain

and

Cash sale Rs 50,000, Credit sales Rs 3,50,000, Sales returns 50,000 out of Rs 3,50,000. Goods costing 40,000 were sent of approval basis for 50,000 and the approval is not yet received, then the net sales are (a) 3,50,000 (b) 3,25,000 (c) 3,20,000 (d) Rs. 3,00,000

ans it pls

Reply
Follow
Share

3 Replies

Sanket (!..Live to Give..!) (16427 Points)
Replied 24 December 2012

Expenditure method for calculating elasticity of demand

In this method we study the change in total expenditure before and and after the change in price of a commodity. For example the table below shows the change in expenditure on a commodity at different prices.

Price per unit ($)	Demand in units	Total expenditure ($)	Elasticity of demand
6	10	60
5	15	75	>1
4	20	80
6	10	60
5	12	60	=1
4	15	60
6	10	60
5	11	55	<1
4	13	52

In the first three rows of the table we see an increase in total expenditure with a fall in the per unit price of the commodity. In such a case the elasticity of demand is said to be greater than one.

In the middle three rows there is no change in the total expenditure even though the price changes. Here the elasticity of demand is equal to one.

In the bottom three rows there is decrease in the total expenditure on the commodity as the price falls. Here the elasticity of demand is less than one.