QUESTIONS ELASTICITY OF DEMAND

QUESTIONS

1      Explain the concept of price elasticity of demand. What are its various degrees?

2 What are the various determinants of price elasticity of demand?

3 Explain the concept of elasticity of demand. How is elasticity measured?

4 Define elasticity of demand and its value in modern economics.

5 What do you understand by elasticity of demand. What are the factors on which elasticity depends?

6 What is elasticity of demand? Distinguish between price elasticity, income elasticity and cross elasticity of demand?

7 What are the various types of elasticity? A. SHORT ANSWER QUESTIONS

  1. Define price elasticity of demand Give the price elasticity formula.
  2. What are the four major determinants of price elasticity of demand?
  3. If demand is inelastic, will a significant increase in price increase or decrease total revenue?

If the price of a coca cola bottle doubles from Rs 10 to Rs.20, and you buy the same quantity, what is your price elasticity of demand for coca cola. Is it considered elastic or inelastic.

If the price of coca cola increases by Rs. one and this induces you to stop buying coca cola altogether and you switch over to Pepsi, what is your price elasticity of demand for coca cola. Is it considered elastic or inelastic.

If the price of a product rises from Rs. 20 to Rs 24 and demand falls from 400 units to 300 units, what will be the price elasticity of demand?

Suppose your income rises by 5% and it leads to a 10% increase in the demand for clothes, what will be your income elasticity of demand for clothes.

Is the price elasticity of supply for fresh fish likely to be elastic or inelastic when measured over the time period of one day? Why.=

If the demand curve is linear, is the elasticity constant along the demand curve? Which part tends to be elastic and which part tends to be inelastic.

10.If the price of applies rises by 20%, the quantity dernnded of oranges rises by 6%. What is the cross price elasticity of demand between apples and oranges. Are these two goods substitutes or complements?

  1. Is the demand for the following commodities elastic or inelastic, Give reasons.

(i) Colgate tooth paste (ii) Coca Cola (iii) Food grains (iv) a particular brand of lip stick (v) Wills Cigarette (vi) Salt (vii) Medicines (viii) Philips Television.

12.How will the fall in price affect the total revenue (expenditure)?

a)     When demand for a good is inelastic.

b)    When demand for a good is elastic. C) When demand for a good is unitary elastic

ANSWERS:

  1. Price elasticity of demand refers to the responsiveness of quantity demanded to a change in price. Price elasticity of demand can be given numerical value by using the following formula.

A Q P

Price elasticity of demand – % A Q D

(NAQP or AP xq

  1. The four major determinants, of price elasticity of demand are (i) Availability of close substitutes (ii) The proportion of income spent on the good. (iii) Whether the good is a necessity or luxury. (iv) Time horizon over which demand is measured.
  2. If the demand for a commodity is inelastic, a large increase in the price of good will raise total revenue. It is because, a large increase in price of the good will be accompanied by only a small reduction in the quantity demanded.
  3. The elasticity of demand = 0 (zero). The quantity demanded does not change as price changes. Demand is considered perfectly inelastic.
  4. The elasticity of demand for coca cola is infinite. The demand is considered perfectly elastic.6. Applying price elasticity formulaEp =Ap qSolution:             Ag = 400 -300 = 100

    Ap = 20 – 24              = – 4

    . original price = 20

    original quantity = 400

    100 20

    EP         4 x 400 – 125 = EP >

    Income elasticity of demand formula

    % change in quantity demand

    Ey -                % change in income

    10%

    Ey – 50/ – 2 . Positive income Demand elastic

    1. (i) Normal good have negative price elasticity of demand. In this case, the price
      elasticity of supply for fish will be inelastic. It is because once the fish are caught, the quantity offered for sale is fixed and it must be sold before it spoils regardless of the price.
    2. The elasticity is not constant along the demand curve. The upper part of the demand curve tends to be elastic, while the lower part tends to be inelastic.

    6%

    10 Cross price elasticity of demand between apples and arranges -                                    – 0.30. Apples

    20%

    and oranges are substitutes because the cross price elasticity is positive.

    11 (i) The demand for Colgate is elastic because a number of other varieties of tooth paste which is close substitutes are available in the market.

    (ii)    Demand for Coca Cola is elastic as its close substitutes are available.

    (iii)   Demand for food grains is inelastic as this is a necessary good.

    (iv)   Demand for particular brand of lip stick is elastic as other brands which are close substitutes are available.

    (v)     Demand for Wills Cigarette is elastic because other brands of cigarettes which are close substitutes of Wills are available in the market.

    (vi)   Demand for salt is inelastic because it is a necessary good and households spend a very small partition of the income on it.

    (vii) Demand for medicines for a patient is inelastic as he has to take it.

    (viii)    Demand for Philips Television is elastic as its close substitutes are available in the market.

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of what use is elasticity of demand, to the government or and the firm?

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1- What is QUESTIONS ELASTICITY OF DEMAND?
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