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Question
Define or explain the following concept:
Income Elasticity of Demand
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Solution
Income elasticity of demand measures the responsiveness of quantity demanded with respect to a change in the income of the consumer, while other factors including price of the commodity remain unchanged.
`"Em" = ("Proportionate change in quality demanded of good X")/"Proportionate change in income of the consumer"`
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Elasticity resulting from infinite change in quantity demanded.
- Assertion (A): Elasticity of demand explains that one variable is influenced by another variable.
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The concept of elasticity of demand was introduced by
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| (1) Perfectly elastic supply | (a) Es > 1 |
| (2) Perfectly inelastic supply | (b) Es < 1 |
| (3) Unitary elastic supply | (c) Es = 1 |
| (4) Relatively elastic supply | (d) Es = 0 |
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Elasticity of the demand is available when:
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| Column A | Column B |
| 1. Increase or decrease in demand for a commodity does not cause any change in its price. | (a) Effect on supply, in the case of Perfectly Elastic Demand. |
| 2. Increase or decrease in demand causes a change in the price of the commodity. Equilibrium quantity remains constant. | (b) Effect on demand, in the case of Perfectly Inelastic Supply. |
| 3. Increase or decrease in demand cause a change in the price of the commodity. Equilibrium quantity remains constant. | (c) Effect on demand, in the case of Perfectly Elastic Supply. |
| 4. Increase or decrease in demand for a commodity does not cause any change in its price. | (d) Effect on supply, in the case of Perfectly Elastic Demand. |
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The elasticity of demand gets influenced by the nature of the commodity.
Study the following table and answer the questions:
| Price of Pen (₹) | Demand for Pen |
| 10 | 500 |
| `square` | 400 |
| 30 | `square` |
| `square` | 200 |
| 50 | `square` |
Questions:
- Complete the above table.
- Which type of relationship is found between the price of a pen and demand for the pen?
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Reasoning (R) : Changes in consumers income leads to a change in the quantity demanded.
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As a result of 5% fall in the price of a good, its demand rises by 12%, the demand for the good will said be ______.
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What is meant by elastic demand?
Which type of good typically has inelastic demand?
Which statement about the law of demand and elasticity of demand is true?
