A decline in the price of X by Rs. 2 causes an increase of 10 units in demand which goes up to 60 units. The new price is Rs. 18. calculate the price elasticity of demand
Answers
Explanation:
Question 1. Explain price elasticity of demand.
Answer: The degree of responsiveness of quantity demanded to changes in price of commodity is known as price elasticity of demand.
Question 2. Consider the demand for a good. At price Rs 4, the demand for the good is 25 units. Suppose price of the good increases to Rs 5, and as a result, the demand for the good falls to 20 units. Calculate the price elasticity? [3-4 Marks]
Answer:
ncert-solutions-for-class-12-micro-economics-elasticity-of-demand-1
Question 3.
ncert-solutions-for-class-12-micro-economics-elasticity-of-demand-2
Answer:
ncert-solutions-for-class-12-micro-economics-elasticity-of-demand-3
Negative Sign of ED indicates that inverse relationship between price and quantity demanded.
PED = 1 [Unitary elastic demand].
Question 4. Suppose the price elasticity of demand for a good is -0.2. If there is a 5% increase in the price of the good, by what percentage will the demand for the good go down?[3-4 Marks]
Answer:
ncert-solutions-for-class-12-micro-economics-elasticity-of-demand-4
Question 5. Suppose the price elasticity of demand for a good is -0.2. How will the expenditure on the good be affected if there is a 10% increase in the price of the good? [1 Mark]
Answer: Total expenditure will rise if there is 10% rise in the price of the good since its demand is inelastic (Given ED = 0.2).
Question 6. Suppose, there was 4% decrease in the price of a good and as a result, the expenditure on the goods increased by 2%. What can you say about the elasticity of demand? [1 Mark]
Answer: As total expenditure has increased with the decrease in price, the demand is said to be highly elastic.
MORE QUESTIONS SOLVED
I. Very Short Answer Type Questions (1 Mark)
Question 1. Define price elasticity of demand.
Answer: The degree of responsiveness of quantity demanded to changes in price of the commodity is known as price elasticity of demand.
Question 2. Why is price elasticity of demand has negative sign always?
Answer: Price elasticity of demand is generally negative because of the inverse relationship between price and quantity demanded.
Question 3. Give the formula for measuring price elasticity of demand according to percentage method.
Answer: Elasticity of demand (ED)
Percentage change in quantity demanded Percentage change in price
Question 4. Give the formula for measuring price elasticity of demand according to point method.
Answer: Elasticity of demand (ED)
Lower Segment of demand curve (LS)
Upper Segment of demand curve (US)
Question 5. Define perfectly inelastic demand.
Answer: If price changes, and quantity demand remains constant, ed = 0 and the result is known as perfectly inelastic demand.
Question 6. Define perfectly elastic demand.
Answer: If quantity demand changes and price remains constant, ed = o and the result is known as perfectly elastic demand.
Question 7. Demand for product X is perfectly ! elastic. What will be the change in price if demand rises from 50 per unit to 70 per unit?
Answer: There will be no change in price as demand is perfectly elastic.
Question 8. If ED < 1, in which portion the point would be located on a straight line demand curve?
Answer: In the lower half.
Question 9. When is the demand of a commodity said to be inelastic? [CBSE Sample Paper 2010]
Answer: When percentage change in the quantity demanded is less than percentage change in price, demand for such a commodity is said to be less elastic.
Question 10. If price elasticity of demand for a product is equal to one, what will be the nature of its demand curve?
Answer: Demand curve of a product with unitary elastic demand is a rectangular hyperbola.
Question 11. A rise in the price of a good results in an increase in expenditure on it. Is its demand elastic or inelastic? [CBSE Sample Paper 2008}
Answer: The demand is inelastic.
Question 12. If two demand curves intersect, which one has the higher price elasticity?
Answer: When two demand curves intersect, the flatter curve is more elastic.
Question 13. What happens to total expenditure on a commodity when its price falls and its demand is price elastic? [CBSE Sample Paper 2010}
Answer: Total expenditure will increase.
Question 14. A poor household with no or very little income remains underfed. If the household’s income rises, how will it affect household’s demand for low-quality rice.
Answer: Household’s demand for rice will rise.
Question 15. How will a rich household’s demand for low-quality rice respond to an increase in income of the household?
Answer: It will decrease.
II. Multiple Choice Questions (1 Mark)
Question 1. In case of a straight line demand curve meeting t