Question #129273
An individual spends all his income on two goods X and Y. If with the rise in price of good X, the quantity purchased of good Y remains unchanged, what is the price elasticity of demand for X?
Expert's answer
The quantity purchased of good Y remaining the same even when the price of good X rises, shows that the expenditure of good Y (Py, Qy) remains constant with a given income to spend on the two goods. This also means that the expenditure of good X remains constant when its price rises.This clearly shows that the price elasticity of demand for good X is equal to 1.
