Elasticity Of Demand

Question 1

How is elasticity of demand different from law of demand?

Answer 1

1. The law of demand gives us the direction of change in quantity demanded, but does not specify the magnitude or the extent by which the quantity demanded changes with change in its price.
2. Therefore, elasticity of demand helps measure the magnitude of change in the quantity demanded.
   3.Helps us to know “how much”.

Question 2

Percentage method for measuring price elasticity of demand?

Answer 2

Ep= (-) % change in qty demanded/ % change in price

%change in qty demanded=New Q- OldQ /Initial qty X 100
% change in price = New P-Old P/ initial price X 100

Question 3

Proportionate method for measuring price elasticity of demand?

Answer 3

Ep = (-) ∆Q/ ∆P X P/Q

Question 4

Two important observations about measuring price elasticity of demand ?

Answer 4

1. Elasticity should always be measured and compared in absolute terms (ignoring the negative sign).
2. Price elasticity of demand is not affected by the absolute change in demand or price. Rather, its value is influenced by percentage change in demand or price.

Question 5

Demand curve in case of perfectly elastic demand? Give example of situation.

Answer 5

Demand Curve in Perfectly elastic demand is parallel to X axis.
Eg: imaginary situation.

Question 6

When percentage change in quantity demanded is equal to the percentage change in price, what is the case of demand? What is the demand curve?

Answer 6

This is the case of unit elastic demand. Ep= 1. Demand curve is a rectangular hyperbola. Sometimes shown as downward sloping straight line for simplification.

Question 7

_______ the curve, _______ the elasticity.

Answer 7

Flatter, more

Question 8

In which case is the demand curve downward sloping and steep?

Answer 8

Less than unit elastic demand. Ep< 1. It is when percentage change in quantity demanded is less than percentage change in price.

Question 9

Which demand curve is an example of imaginary situation or life-saving drugs?

Answer 9

Perfectly inelastic demand. When there is no change in demand with change in price. Ep = 0. Demand curve is parallel to Y axis.

Question 10

When percentage change in quantity demanded is more than the percentage change in price, which case of demand?

Answer 10

More than unit elastic demand. Ep > 1. Demand curve is downward sloping and flatter. Eg: AC, smart TV ,luxury goods etc.

Question 11

Necessity goods are an example of?

Answer 11

Less than unit elastic demand. Here the percentage change in quantity demanded is less than the percentage price. Also known as inelastic demand.

Question 12

When is Ep= ∞?

Answer 12

Perfectly elastic demand. It is an imaginary situation. When there is infinite demand at particular price and demand becomes zero with slight rise in price.
When demand increases ,decreases or, even become zero without any change in price.

Question 13

When is Ep=0?

Answer 13

Perfectly inelastic demand. There is no change in demand with change in price.