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CA Foundation · Business Economics · Theory of Demand and Supply

A bookseller sells 200 notebooks a day at ₹40 each. After cutting the price to ₹36, daily sales rise to 240 notebooks. Using the total outlay method, demand for notebooks in this price range is:

Demand is elastic. Price fell from ₹40 to ₹36, yet total revenue rose from ₹8,000 to ₹8,640. Under the total outlay method, revenue moving opposite to price means elasticity is greater than one, because the percentage rise in quantity exceeds the percentage fall in price.

  1. AElastic, because total revenue rose from ₹8,000 to ₹8,640Correct
  2. BInelastic, because total revenue rose from ₹8,000 to ₹8,640
  3. CUnitary elastic, because quantity and price both changed
  4. DInelastic, because the quantity sold increased by only 20%

Explanation

Initial TR = 200 × 40 = ₹8,000. New TR = 240 × 36 = ₹8,640. A price fall accompanied by a rise in total revenue indicates elastic demand under the total outlay method. Option 2 reverses the rule. Option 4 ignores that the 20% quantity rise exceeds the 10% price fall.

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