1. Define price elasticity of demand.

Ans. Price elasticity of demand is a measure of degree of

responsiveness of demand for a good to change in its price.

2. Give the formula for measuring price elasticity of demand

according to percentage method.
Ans. Elasticity of Demand (Ed) =
Percentage change in demand
Percentage change in price

3. Give the formula for measuring price elasticity of demand

according to the geometric method.
Ans. Elasticity of Demand (Ed) =
Lower part of demand curve
Upper part of demand curve

4. What is meant by perfectly elastic demand?

Ans. When the demand for a good reduces to zero with a slight
increase in price and increases to infinite with a small reduction
in price then demand is said to be perfectly elastic.

5. When is the demand for a good is said to be perfectly inelastic

demand?
Ans. Perfectly inelastic demand implies a situation where any
percentage change in price causes no change in quantity
demanded.

6. When is the demand of a commodity said to be inelastic? OR Give

the meaning of 'inelastic demand'.
Ans. When percentage change in the quantity demanded is less than
percentage change in price, then demand for such a commodity
is said to be less elastic.
7. What is meant by unit elastic demand?
Ans. When percentage change in the quantity demanded is equal to
percentage change in price, then demand for such a commodity
is said to be unit elastic.

8. What is meant by elastic demand?

Ans. When percentage change in the quantity demanded is greater
than the percentage change in price, then it is said to be elastic.

9. A rise in the price of a good results in an increase in expenditure

on it. Is its demand elastic or inelastic?
The demand is inelastic.

10. What happens to total expenditure on a commodity when its

price falls and its demand is price elastic?
Ans. Total expenditure will increase.

11. Why is demand for water inelastic?

Ans. Because it is a necessity of life.

12. What is price elasticity of demand for life saving drugs?

OR
What is the demand curve for a necessity commodity?
Ans. Life saving drugs are essentials. In response to change in their
price, there can be no change in the quantity demanded. That
is, E, = 0. Life saving drugs have perfectly inelastic demand. The
demand curve for a necessity commodity is inelastic.

13. Price elasticity of demand of good X is -2 and of good Y is -3.

Which of the two goods have more price elasticity and why?
Ans. Though mathematically -2 > -3, but in the context of Ed good Y
(-3) is more elastic. The Percentage change in demand of good Y is 3
times the price change, whereas the change in demand of good X is
only two times the price change.
14. Differentiate between law of demand and price elasticity of
demand.
Ans. Law of demand is a 'qualitative statement' which expresses the
change in direction of demand due to change in price of the good
while price elasticity of demand is a 'quantitative statement' which
measures the quantitative change (magnitude of change in demand
of good due to price change.

15. Explain the relationship between total expenditure and price

elasticity of demand.
Ans. Relationship between total expenditure and price elasticity of
demand:
i) If the total expenditure changes inversely with the price change,
the demand for the commodity is elastic i.e. Ed > 1).
ii) If the total expenditure on the commodity remains the same as
before and after the change in price, then demand is said
to be unit elastic (i.e. Ed = 1).
(iii) If the total expenditure on the commodity increases with an
increase in its price and decreases with a decrease in the
price, then the demand for the commodity is inelastic (i.e. Ed < 1).

18. Demand of a product is elastic and its price falls. What will be its
effect on total expenditure on the product? Give a numerical
example.
Ans. If demand of the product is elastic (i.e. Ed > 1), then total
expenditure will rise with fall in price.
Example:
19. Is the elasticity of demand equal on all points of a straight line
demand curve? Give reasons.
Ans. No, on a straight line demand curve, price elasticity is different
at its different points. It is because at different points on the curve,
lower segment and upper segment of demand curve are not equal.
The degree of price elasticity of demand ranges between infinity (on
y-axis) to zero (on x-axis) depending upon the size of lower segment
and upper segment of demand

20. Can the demand for a commodity be elastic for one person and
at the same time inelastic for the other? Give reason to support your
answer.
Ans. Yes. The demand for a commodity is not the same for all its
consumers.
Example: The demand for a car may be elastic for a teacher, because
it is a luxury item for him. But surely for a businessman or a doctor,
the demand for car is inelastic, as it becomes an essential item for
them.

21. Explain any four factors on which elasticity of demand depends.

Ans. Factors on which Elasticity of Demand depends:
i) Nature of commodity: An important determinant of elasticity of
demand for a commodity is the nature of the commodity itself. If the
commodity is a necessity of life, its demand will not change much
when its price changes. Hence, the elasticity of demand will be low.
The demand for luxury items (e.g., ACs, big-sized colour TV sets, etc.),
on the other hand, is elastic. When the price of air-conditioners
increases, some people may not purchase air-conditioners.
ii)Number of substitutes of a commodity: If close substitutes of a good
are readily available in the market, its price elasticity of demand will be
elastic, for example, Coca Cola, Pepsi, etc. It is because an increase in
price of one will make consumers to shift over to other substitute goods
easily. On the other hand, demand for petrol and salt is inelastic, as
consumers have no option but to buy the given good.
iii) Number of uses: Good which can be put to several uses will have
more elastic demand in comparison to a good having
limited use.
(iv) Habits: Habits also pay a role in the determination of elasticities.
For example, if a person has developed the habit of drinking, he may
not to be able to reduce his consumption of wine even when the price
of wine goes up. His demand for wine will then be inelastic

22. Define income elasticity of demand.

Ans. Income elasticity of demand measures the responsiveness of
quantity demanded of a commodity in response to change in
income of the consumer
.
23. What is cross elasticity of demand between two goods?
Ans. Cross elasticity of demand is defined as the percentage change
in quantity demanded of a commodity in response to change
in the price of its related commodity.

24. What does zero cross elasticity between two goods imply? Give
an example to explain.
Ans. Cross elasticity of demand is said to be zero when a change in
the price of one commodity does not affect the demand for
another.
Example : If two goods are not related, then cross elasticity between
them will be zero. For example, a change in price of sugar will not
affect the demand for shoes.

25. When is cross elasticity of demand positive?

Ans. When two commodities will be substitutes for each other, if a
fall in the price of Y reduces the demand for X-commodity and
vice versa. Then cross elasticity of demand is positive.
26. When is cross elasticity of demand negative?:
Ans. When the fall in the price of X commodity raises the demand for
X commodity and rise in the price of Y reduces the demand
for X commodity, the cross elasticity for complement good is
negative.

27. Arrange the following coefficients of price elasticity of demand in

ascending order :
-0.87, -0.53, -3.1, -0.80
Ans. Minus sign only signifies inverse relation between price and
quantity demanded. It does not affect the value of price
elasticity. So, in the context of price elasticity of demand, ascending
order is :
-0.53, -0.80, -0.87, -3.1.

28. A list of goods is given below. For each of these, state whether
the price elasticity of demand is inelastic, relatively elastic, highly
elastic or highly inelastic. Give reasons to support your answer.
(a) demand for school uniform,
(b) demand for refrigerators,
(c) demand for electricity,
(d) demand for cigar by a chain smoker,
(e) demand for diesel and petrol,
(f) demand for personal computers, and
(g) demand for precious stones and costly jewellery.

Ans. (a) School uniform is an essential item. So, demand for it will be
inelastic.
• Refrigerator is not an essential item of consumption for the
common man. So, its demand will be relatively elastic.
• Electricity has alternative uses. Hence, its demand will be elastic.
• It is a habitual necessity for the chain smoker. Hence, demand for
cigar will be inelastic.
• Demand for diesel/petrol will be inelastic as its substitutes are not
available.
• It is non-essential item of consumption for a common man. So, its
demand will relatively be elastic. (g)
Their demand is inelastic. Costly diamonds and jewellery are
demanded by the very rich persons who do not bother price change
much.

29. State with reasons, whether the following items will have elastic
or inelastic demand : (i) Matchbox; (ii) Coke; (iii Medicines;
(IV) NCERT Textbooks; (v) Electricity; (vi) Cigarettes; (vii) Butter for a
poor man.
Ans.
i) Matchbox has inelastic demand as consumer spends a very small
proportion of his income.
(ii)The demand for coke is elastic as it has number of substitutes
available in the market.
(iii)Medicines have inelastic demand, as they are essential goods. (iv)
NCERT Textbooks have inelastic demand because they are necessary
goods.
(v) Electricity has elastic demand, as it can be put to several uses.
(vi)Cigarettes have inelastic demand, as its consumers are
habituated.
(vii) Butter for a poor man has elastic demand, as it is a luxury item
for the poor man.

30. A perfectly elastic price-demand curve is parallel to the x-axis.

Why or why not?
Ans. A perfectly elastic demand curve is parallel to the X-axis
because the buyers are willing to buy any quantity of the good at a
given price. In other words, good is demanded only at a certain
price.