Advertisements
Advertisements
Questions
Explain price elasticity of demand.
Explain Price Elasticity of Demand. Draw the various degrees of it with diagrams.
Advertisements
Solution
Price Elasticity of Demand (PED) examines how sensitive the quantity looked for of a commodity is to a change in its price while maintaining all other factors constant.
`E_p = ("% Change in Quantity Demanded")/("% Change in Price")`
`E_p = (DeltaQ"/"Q)/(DeltaP"/"P)`
where:
- Ep = Price Elasticity of Demand
- ΔQ = Change in Quantity Demanded
- ΔP = Change in Price
- Q = Initial Quantity Demanded
- P = Initial Price
Degrees of Price Elasticity of Demand:
- Perfectly Elastic Demand: The quantity demanded changes infinitely in response to a very slight change in price. For example, Highly competitive markets for identical products.
- Horizontal demand curve.
- Infinite responsiveness to price changes.
- Perfectly inelastic Demand: The quantity demanded remains constant, regardless of changes in prices. For example, life-saving drugs and essential goods such as salt.
- Vertical demand curve.
- Zero responsiveness to price changes.
- Unitary Elastic Demand: Percentage change in quantity demanded is exactly equal to the percentage change in price. For example, certain everyday goods.
-
Demand changes exactly in proportion to price changes.
-
- Relatively Elastic Demand: Percentage change in quantity demanded is greater than the percentage change in price. For example, luxury goods, electronics.
- High responsiveness to price changes.
- Relatively Inelastic Demand: Percentage change in quantity demanded is less than the percentage change in price. For example, necessities like milk and water.
- Low responsiveness to price changes.
Notes
Students should refer to the answer according to the question.
APPEARS IN
RELATED QUESTIONS
The price elasticity of demand for a good is - 0.4. If its price increases by 5 percent, by what percentage will its demand fall? Calculate.
What will be the effect of 10 percent rise in price of a good on its demand if price elasticity of demand is (a) Zero, (b)-1, (c)-2.
Price elasticity of demand for the two goods X and Y are zero and (–) 1 respectively. Which of the two is more elastic and why?
As we move along a downward sloping straight line demand curve from left to right, price
an elasticity of demand : (choose the correct alternative)
(a) remains unchanged
(b) goes on falling
(c) goes on rising
(d) falls initially then rises
The measure of price elasticity of demand of a normal good carries minus sign while price elasticity of supply carries plus sign. Explain why?
A consumer spends Rs 1000 on a good priced at Rs 8 per unit. When price rises by 25 percent, the consumer continues to spend Rs 1000 on the good. Calculate the price elasticity of demand by percentage method.
A consumer spends Rs 1,000 on a good priced at Rs10 per unit. When its price falls by 20 percent, the consumer spends Rs800 on the good. Calculate the price elasticity of demand by the Percentage method
A consumer spends Rs 400 on a good priced at Rs 8 per unit. When its price rises by 25 percent, the consumer spends Rs 500 on the good. Calculate the price elasticity of demand by the Percentage method.
Price elasticity of demand of a good is (-)1. When its price per unit falls by one rupee, its de from 16 to 18 units. Calculate the price before a change
When the price of a good falls from Rs 10 to Rs 8 per unit, its demand rises from 20 units to 24 units. What can you say about price elasticity of demand of the good through the expenditure approach?
A consumer buys 27 units of a good at a price of Rs 10 per unit. When the price falls to Rs 9 per unit, the demand rises to 30 units. What can you say about price elasticity of demand of the good through the 'expenditure approach'?
Price elasticity of demand of a good is (-) 1. Calculate the percentage change in price that will raise the demand from 20 units to 30 units.
Explain any 'two methods' of measuring price elasticity of demand.
Discuss any four factors affecting price elasticity of demand.
A consumer buys 10 units of a commodity at a price of Rs. 10 per unit. He incurs an expenditure of Rs 200 on buying 20 units. Calculate price elasticity of demand by the percentage method. Comment upon the shape of demand curve based on this information.
State whether the following statement is True or False :
Concept of elasticity of demand is useful for finance minister.
What is the elasticity of demand?
State whether the following statement isTrue or False with reason:
The concept of elasticity of demand is useful in economic theory.
Give reason or explain the following statement.
All desires are not demand.
The demand for salt is ______.
State whether the following statement is TRUE and FALSE.
Perfectly inelastic demand curve is parallel to the X axis.
Define the following concept:
Cross Elasticity of Demand
Give reason or explain the following statement:
Concept of Elasticity of Demand helps trade union leaders.
Give reason or explain the following statement:
Demand for commodity having multiple uses has elastic demand.
Write short answer for the following question :
Total outlay method of measuring price elasticity of demand.
Answer the following question.
If the price of a commodity rises by 40% and its quantity demanded falls from150 units to 120 units, calculate the coefficient of price elasticity of demand for the commodity.
State whether the following statement is true or false. Give valid reasons in support of your answer.
The coefficient of price elasticity of demand for the commodity is inversely related to the number of alternative uses of the commodity.
State whether the following statement is true or false. Give valid reasons in support of your answer.
Luxury goods often have lower price elasticity of demand.
Answer the following question.
When the price of X doubles, its quantity demanded falls by 60 percent. Calculate its price elasticity of demand. What should be the percentage change in price so that its quantity demanded doubles?
The concept of elasticity of demand was introduced by
Elasticity of demand is equal to one indicates
Identify the correct pair of items from the following Columns I and II:
| Columns I | Columns II |
| (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 |
Elasticity of the demand is available when:
Identify the correctly matched pair from the items in Column A by matching them to the items in column B:
| 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. |
Assertion (A): Elasticity of demand explains that one variable is influenced by another variable.
Reasoning (R): The concept of elasticity of demand indicates the effect of price and changes in other factors on demand.
State with reasons whether you agree or disagree with the following statement:
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?
When change in price is greater than the change in quantity demand it is a case of elastic demand.
- Luxuries goods have generally elastic demand.
- Goods whose close substitutes are available have inelastic demand.
Which type of good typically has inelastic demand?
Which statement about the law of demand and elasticity of demand is true?
