02_DEMAND & LAW OF DEMAND[1]_class 12
Demand
Demand is the want or willingness of the consumer to buy goods and services. Consumer must have enough money to buy commodities at various possible prices.
FACTORS AFFECTING DEMAND/DETERMINANATS OF DEMAND
There are two types of demand function
(I) Individual Demand Function
If refers to the relationship between quantities of the commodity demanded by an individual consumer and various factors affecting demand.
(A)Price of the Commodity
Price is the most important factor affecting demand. Demand for a commodity increases, when the prices falls and falls when the price rises Price of the commodity and quantity demanded are inversely related to each other.
(B) Price of the related goods
Related goods are of two types:
(i) Substitutes/ Competitive Goods :Substitute Goods are those Goods which can be used in place of each other Example. Tea and Coffee. The change in the price of tea has the effect on the demand of the coffee.
When the price of one good rises, the demand for another good also rises. This shows the direct relationship between price of one good and demand for another good.
(ii) Complementary Goods :These are the goods which are jointly demanded to satisfy a particular want. Example. Car and Petrol. In such commodities there will be inverse relationship between price of one commodity and quantity demanded of other commodity.When the price of one commodity rises, the demand for another commodity falls.
(c) Income of the Consumer
(i) Normal Goods: A rise in the people’s income, will cause an increase in the demand of goods while fall in income will cause demand to fall.
For Example. Car,A.C.
(ii) Inferior Goods: A good whose demand by a consumer falls with the rise in the income of the consumer is called inferior goods.
For example. if a consumer reduces the consumption of toned milk with the increase in the income, then toned milk is an inferior good.
(D) Tastes and Preferences
When we begin to like certain commodities, their demand will surely increase. Reverse will happen if we start disliking them. Consumer’s tastes and preferences also depends upon advertisements.
(E) Future Expectations regarding Prices
If the consumer expects future changes in the price of commodity they will change the demand at present even when the present price remains unchanged. If he expects future fall in prices, he will buy less today.
(II) Market Demand function-
Following are the factors:
(A) Population: Increase in the population increases the demand.
Composition of the population also affects the demand. Composition of the populationmeans the distribution of the population on the basis of sex, age etc. A change inthe composition of the population has an effect on the demand of the commodity.
(B) Season and Weather: The season and weather conditions also affect
Consumer’s demand. Example. Demand for woolen clothes rises in winter seasons.
(C) Government Policy: The Government of the country can also affect the demand for a commodity through taxation and subsidies It may reduce the demand for the commodity by imposing tax on it or increases by lowering the prices through subsidies.
(D) State of Business: The prevailing business conditions in a country also effects the level of demand. Level of demand increases during boon period while decreases during the period of depression.
(E) Distribution of Income: If the national income is equally distributed, then the demand for the necessaries will increase. If it is unequally distributed, there will be more demand for luxury goods.
LAW OF DEMAND
The law of demand explains the inverse relationship between the price and the quantity demanded of a commodity. According to this law, ‘other things remaining constant’ (cetrisperibus), price and quantity demanded of a commodity move in the opposite direction. When the price of the commodity increases, the quantity demanded falls and when the price decreases, the quantity demanded increases. Law of demand only-indicates the direction of the change in demand but not the magnitude of the change.
Assumptions:
Following are the assumptions —
- No change in consumer’s income
- No change in the price of the related goods.
- No change in the consumer’s tastes, preferences and fashion,
- No expectation of change in the future prices of the goods,
- No change in the population.
DEMAND SCHEDULE
The tabular representation of the prices and the corresponding quantities demand is called demand schedule. It can be —
- Individual demand schedule: A table showing quantities of a good a consumer is willing to buy at different prices is called Individual Demand Schedule.
| Prices | Quantities |
| 10 | 100 |
| 20 | 200 |
| 30 | 300 |
- Market demand schedule: It can be defined as quantities of the commodity which all the consumers would buy at all possible prices in a given period of time.
| Prices | Quantities by A | Quantities by B | Quantities by C | Market Demand |
| 10 | 50 | 30 | 20 | 100 |
| 20 | 60 | 50 | 40 | 150 |
| 30 | 75 | 65 | 60 | 200 |
| 40 | 90 | 70 | 80 | 240 |
DEMAND CURVE
The graphical representation of a demand schedule is known as “demand curve”. Curve which shows the relationship between the price of a commodity and the quantity demanded of the commodity the consumer wishes to purchase is called demand curve.
It can be of two types:
(1] Individual Demand Curve: It represents the different quantities of the commodity demanded by an individual at different prices.
(2) Market Demand Curve: It is thehorizontal summation of the individual demand curve.The negative slope of the demand curve indicates shows more and more of quantity is demanded at lower prices.
CAUSES OF THE OPERATION OF THE LAW OF DEMAND
- 1. Whydemand curve slopes downward from left to right?
Downward sloping demand curve shows inverse relationship between price and demand.
Following are the reasons:
(1) Law of Diminishing Marginal Utility
The law of diminishing marginal utility states that when every additional unit of the commodity is consumed, the marginal utility declines because the earlier units of the commodity have partially satisfied our wants. When every additional unit brings decreasing utility, the consumer would naturally prefer to buy additional units only at the lower prices.
(2) IncomeEffect: Income Effect here implies effect of change in consumer’s real income on its demand. As the price of the commodity decreases, the real income of the consumer (i.e., income in terms of the goods and services or purchasing power of the consumer) increases. Consumer would now be able to buy more goods and services by spending the same amount of money.
(3) Substitution Effect: Substitution effect here means substitution of the cheaper goods from costlier goods. When the prices of the commodity increases, the price of the substitute goods remaining unchanged, the consumer would like to prefer any one of the substitute goods which is cheaper. The demand of the commodity would fall as a result of the increase in the prices.
(4) Entryand Exit of the Consumer: When the price of the commodity falls. new consumers who were unable to buy the commodity earlier will start buying it as it is within their reach now. This will increase the demand of the commodity. Reverse will happen in case of increase in prices.
(5) Various Uses: Some commodities have alternative uses like milk, electricity etc. If the price of such a commodity decreases, it will be put to even less important uses. Consequently the demand will go up.
EXCEPTION TO THE LAW OF DEMAND
1) Giffon Goods: Certain goods are inferior from the viewpoint of consumer. A fall in the prices of such goods may not increase their demand because consumer start diverting his extra purchasing power to buy superior commodities. For Example.: Maize and bajra are the giffon goods.
2) Articles of distinction: Articles of distinction include precious clothes, high priced watches, AC etc. The demand for these goods is high when their prices are high. A fall in their prices may lead to fall in their demand as rich people prefer to buy less.
3) Necessities of Life: The law does not operate in necessities of the goods such as food grains, salt etc. A minimum Quantity of such goods have to be purchased at any price.
4) Future Expectation Regarding Change in Price: There are many commodities whose prices are expected to change in the future. Under such circumstances, the consumer behave opposite to the law of demand. Example. if we expect fall in the prices of the commodity in future, he would like to purchase lesser quantities at present even at low prices.
5) Ignorance: If consumers are ignorant about quality of the commodity, the law will not apply. The consumer may judge the quality of the commodity from its prices. They regard high priced commodities are better in quality as compared to low priced commodities.
| Normal Goods | Inferior Goods |
| Normal goods are those goods whose demand increases as income of the buyers increases. | Inferior goods are those goods whose demand decreases as income of the buyer increases. |
| In case of normal goods, income effect is positive.
As the income increases, demand curve shifts upwards to the right. |
In case of Inferior goods, income effect is negative.
As the income increases, the demand curve shifts downward to the left. |
CHANGE IN QUANTITY DEMANDED AND CHANGE IN DEMAND
Movement along the Same Demand Curve (Change in the Quantity Demanded)
Other things being equal, when there is a change in the price of the commodity, the resulting change in the demand is shown along the same demand curve through two different points. Such movement is called change in the quantity demanded.
When the price of the commodity falls, its demand expands, which is called expansion in demand. On the other hand, price rises which results in reductionin demand, which is called contraction in demand.
shift of demand curve (or change in demand)
When the demand changes on account of the factors other than changes in the price there will be a shifts in the demand curve. This situation is termed as ‘change demand’. Demand curve may shifts either rightwards or leftwards.
(1) Leftward Shift: When due to the changes in the factors other than price, there is a reduction in the demand,it is called decrease indemand. Demand curve in such a case will shift leftwards. Decrease in demand can take place when consumer demands less at the same prices.
At price OP, quantity demanded is OQ1. Due to changes in factors, other than price, the demand curve shifts towards left from DD1 to DD2, being at the same pricelevel but reduced quantity by Q1Q.
Causes for Decrease in Demand
(i) Decrease in the consumer’s income
(ii) Decrease in the price of substitute good.
(iii) Rise in the price of complementary commodities.
(iv) Future expectation of fallin the prices.
(v) Change in the consumer’s tastes and preferences not in the favourofthe commodity.
(vi) Rise in income of consumer ( in case of inferior goods).
(2) Rightward Shift: When due to the changes in the factors other than price of the commodity, more quantity of the commodity is demanded. It is called increase in demand. The demand curve will shift to the right. Increase in demand of the commodity implies thatconsumer’s demand increases at the same prices.
At price OP, quantity demanded is OQ1 with the changes in the factors, other than price, the demand curve shifts rightwords indicating increase in demand.
Q1 Q2 is the increase in demand at same price level.
Causes for an Increase in Demand
(i) Increase in consumer’s income.
(ii) Increase in the price of substitutes.
(iii) Fall in the price of complementary commodities.
(iv) Future expectation ofrise in prices.
- Change in the consumer’s tastes and preferences in the favour of the commodity.
- Fall in the income of the consumer (in case of inferior goods)
DIFFERENCE BETWEEN
| Change in Quantity Demanded | Change in Demand |
| It refer to the movement from one point to another point on the same demand curve | It refers to the movement from one point on one demand curve to another point on another demand curve. |
| There are two types of movement.
(i) Upward (ii) Downward |
There are two types of shift.
(i) Rightward shift (ii) Leftward shift |
| It occurs due to the changes in the prices | It occurs due to the changes in the other factors |
| It follows the law of demand | It does not follow the law of demand. |
- Differentiate between.
(i) Expansion in demand and increase in demand.
(ii) Decrease in quantity demanded and decrease in demand.
elasticity of demand
Elasticity of demand means responsiveness of demand due to the change in price of the commodity, income of the consumer and price of the related goods. There are 3 types of elasticity of demand.
Price Elasticity of Demand
Price elasticity of demand means the change in the quantity demanded of a commodity in response to change in the price. The greater the reaction or response of demand, the greater will be the elasticity. Price elasticity of demand is commonly known as elasticity of demand.
DEGREES OF PRICE ELASTICITY OF DEMAND
- Perfectly Inelastic Demand
When the quantity demanded does not change at all as a result of change in the price of the commodity, Numerical value of the price elasticity will be zero
ed = 0
| Demand curve will be parallel to y-axis
For example : |
||
| Price | Quantity demanded | |
| 15 | 4 | |
| 20 | 4 | |
| 25 | 4 | |
- Relatively Inelastic Demand
When a large change in price does not bring so much change in demand, the demand is said to be relatively inelastic or the percentage change in demand is less than the percentage change in price
Elasticity of demand will be less than unity. The shape of an inelastic demand curve is steeper.
3. Unit Elastic Demand When the percentage change in demand is equal to the percentage change in price, it is called unitary elastic demand. For example if the price of the commodity rises by 10% and its demand falls by 10%, price elasticity of the demand will be unit elastic. The demand curve takes the shape of rectangular hyperbola.
|
| 4. Relatively Elastic Demand
When the percentage change in demand is greater than percentage change in price, the demand is said to be relatively elastic demand. ed> 1.
|
This type of the situation generally occurs in case of
- Luxury goods
(ii) Close substitutes are available
(iii) Commodity has many uses.
Demand curve is flatter, more inclined to x-axis.
- Perfectly Elastic Demand
When a small change in price creates infinitely large change in demand, it is known as perfectly elastic demand.
Price elasticity of demand is equal to infinity and demand curves is parallel to x-axis.
FACTORS AFFECTING ELASTICITY OF DEMAND
- Nature of the Commodity
Price elasticity for the necessaries of life such as food grains, medicines, textbooks is very low in comparison to luxury good where price elasticity is quite high.
- Availability of Substitutes
Demand for a commodity will be more elastic if its close substitutes are available in market and inelastic if less substitutes are available.
- Number of Uses
The greater the number of uses of commodity higher is the price elasticity of demand example, electricity, milk etc.
- Possibility of Postponement
If the demand for a particular commodity can be postponed for sometime, the demand for the product will be elastic if it cannot be postponed to future and consumption of the commodity is required without delay then elasticity will be less elastic.
Example. D.V.D player etc.
% change in Quantity Demanded =
% Change in Prices
- Proportion of Income Spent
If the consumer spends a small part of his income on the commodity like match boxes etc, even a large change in the price will not affect the demand. On the other hand, if large proportion of income is spent on any commodity, Example electricity bill etc , the elasticity will be more elastic.
- Habit
Those goods which have become habitual necessities, for example cigarettes and wine etc. is inelastic.
- Price level
Highly priced goods like diamonds and low priced goods like postcards etc. have low elasticity of demand because their consumer are not responsive to the price changes. But middle priced commodities are quite price elastic. LikeRadios, watches etc.
Difference between Law of Demand and Elasticity of Demand
| Law of Demand | Elasticity of Demand |
| Law of demand states other things being equal, there is an inverse relationship between price and quantity demanded. | It is the rate of change of quantity demanded of a commodity as a result of change in price. |
| It reflects the direction of change in demand | It tells us the magnitude of the change in demand. |
Methods of measuring elasticity of demand
Percentage method
This method measures the elasticity of demand by the following formula
The elasticity of demand is always negative due to inverse relationship between price and quantity demanded. The value varies from zero to infinity.
Total Expenditure Method
In this method, the change in the price and the consequent changes in the total amount of money spent on it are considered.
There are 3 cases:
- If ed> 1, fall in the price of the commodity leads to an increase in the expenditure or a rise in the prices reduces the expenditure the price elasticity of demand is greater than unity. The price and total expenditure move in the opposite direction.
| Price | Quantity | Total
Expenditure |
| 18 | 10 | 180 |
| 15 | 15 | 225 |
| 12 | 20 | 240 |
- When ed< 1 the price and the total expenditure move in the same direction, elasticity of demand is said to be inelastic or less than unity. It implies that when price rises expenditure also rises and when price falls , expenditure also falls.
| Price | Quantity | TotalExpenditure |
| 18 | 10 | 180 |
| 15 | 11 | 165 |
| 12 | 12 | 144 |
- If the change in the price of the commodity does not result in the change in the total expenditure, the elasticity of demand within that range of price is equal to one. (3)
| Price | Quantity | Expenditure |
| 12 | 15 | 180 |
| 15 | 12 | 180 |
| 18 | 10 | 180 |
Geometric Method
This method is also known as graphic method or point method. This method measures the elasticity of demand at different points on the straight line downward sloping demand curve. Following is the formula for measuring it.
AE is the downward sloping demand curve. Elasticity at different points is calculated as follows
| Ed at point A i.e. ed = ¥
Ed at point B Since BE > AE i.e. ed> 1 Ed at point C (middle point) Since CE Þ AE edÞ 1 At point D Since DE < AE At point ,edÞ O |
Elasticity of different items with reasons
| Item | Price elasticity | Reason |
| Air Conditioner | Highly Elastic | Luxury Commodity |
| Rice in Bengal | Inelastic | It is necessary commodity there |
| Eating in a ffivestar restaurant | Elastic | It is a luxury for many people |
| Cigarettes | Inelastic | It is habitual |
| Salt | Inelastic | Necessary commodity |
| Tata salt | Elastic | It has substitutes available |
| Newspaper | Inelastic | Small proportion of income is spent on it. |
| Milk | Elastic | Milk has many uses |
| Car | Elastic | Car is a luxury item |
| Refrigerator | Unitary elastic | It is neither essential nor luxury |
| Sugar | Inelastic | It has no close substitutes |
| Butter for a postman | Elastic | It is luxury for a poor man |
| EXERCISE |
Multiple Choice Questions
- According to the law of demand
(a)Higher the price, higher the production of goods
(b)Higher the price, lower the cost of production
(c)Lower the price, higher the demand for the product
(d)Higher the price, higher the quantity, a consumer demands
- Demand for a commodity refers to
(a)Desire for the commodity (b)Need for the commodity
(c)Quantity demanded for the commodity
(d) Quantity of the commodity demanded at a certain p rice during a given period of time
- Contraction in demand is the result of
(a) Decrease in the income of the consumer
(b) Increase in the price of other goods
(c)Decrease in the number of the consumer
(d)Decrease in the price of goods concerned
- Allbut one of the following are assume to be same while drawing individual demand curve
(a) Preference of the individual (b) The money income
(c) Price of the commodity (d) Price of related goods
- Identify the factors that generally keeps price elasticity of demand low
(a)Variety of uses of the good
(b)Low prices
(c) Close substitutes of the good
(d)High preparation of consumer’s income spend on the good
- If regardless of the charges in the prices, the quantity demanded remains constant, then the demandcurve will be
(a) Horizontal (b) Vertical
(c) Positive sloped (d) Negative sloped
- All of the following are determinants of demand except
(a) Taste and preferences (b) Income
(c) Quantity supplied (d) Price of related goods
- Movement along the demand curve is described as
(a) Increase in demand (b) Decrease in demand
(c) Change in quantity demanded (d) Change in demand
- If the prices of Pepsi decreases, in a election to the prices of Coke and 7 up demand for
(a) Coke deduce (b) 7 Up decline
(c) Coke and 7 up increases (d) Coke and 7 Up decreases
- Given the following four possibilities which one results in an increase in consumer expenditure,
(a) Demand is unitary elastic and price falls
(b) Demand is elastic and price rises
(c) Demand is inelastic and price falls
(d) Demand is inelastic and price rises
- Movement of the demand curve means
(a) Increase in demand (b) Decrease in demand
(c) Change in demand (d) Change in quantity demanded
- Elasticity of demand for Adidas shoes isbecause______ ______________
(a) Inelastic, it is necessary (b) Inelastic, no close substitutes
(c) Elastic, more close substitutes (d) None
- Demand curve is upward sloping in the case of
(a) Necessary (b) Luxury
(c) Comfort (d) Giffon
- If people’s income increases, the quantity demanded of a good decrease the good shall be
(a) Anormalgood (b) Substitute good
(c) An Inferior good (d) Complement good
- Market demand curve is derived by _________ summation of the individual demand curve.
(a) vertical (b) horizontal
(c) both (a) and (b) (d) neither (a) nor (b)
- There will be ____________ in the demand curve of cars due to rise in the prices of petrol
(a) Rightward shift (b) Upward movement
(c) Leftward shift (d) Downward movement
- CetrisPeribus means
(a) Holding supply constant (b) Holding demand constant
(c) Price being constant (d) Other factors being constant
- The demand function of a good is D = 12 – 2Px, where Px = Price what will be the quantity demanded at Rs. 3/unit.
(a) 10 units (b) 6 units
(c) 3 units (d) 12 units
- When Ed = 0, demand curve is
(a) parallel to x-axis (b) parallel to y-axis
(c) flatter curve (d) steeper curve
- The point in the middle of the demand curve shows ed = _______
(a) 0 (b) ¥
(c) 1 (d) > 1
One Mark Questions:
- Define market demand.
- When the price of the commodity rises, what happens to the demand of substitutes.
- What is the slope of demand curve?
- When the demand is said to be inelastic?
- What is the relation between Ed and slope of demand curve?
- When does the demand curve shifts?
- What is the shape of demand curve for Ed = 1?
- Why demand curve is downward sloping?
- Due to recession in the country, the people suffers massive unemployment. How the demand curve will shift?
- How does introduction of new form of television screen will affect the demand of block and white T.V. why?
- How elasticity of demand is calculated by point method?
- When price of the commodity falls, what happens to the demand of its complements?
- When does expansion in demand takes place?
- Why the demand for newspaper inelastic, even when it is not necessary?
- Draw the demand curve with perfectly. elastic demand
Three/Four Marks Questions
- How rise in the price of related goods affects the demand for a commodity?
- How charge in the income of the consumer affects the demand for the commodity?
- Categorise the following on the basis of elasticity (Give reasons)
(a) Nokia Mobile phone (b) Branched clothes
(c) School bag (d) Match box (e) Salt
- Make a demand schedule for Ed = 1 and Ed < 1. Calculate the expenditure comment on the nature of expenditure.
- State whatever the following are true or false.
(a) Increase in the quantity demanded means rise in the demand due to other factors.
(b) When price rises and consumer plans to spend more, Ed > 1
(c) In case of substitute goods, when the price of one commodity rises the demand curve of other shift to works left.
(d) Due to increase in one more member in the family, expenditure on milk also increases. It is an example of Extension in demand.
(e) Market demand curve is flatter than the individual demand curve.
(f) Expansion in demand leads to an upward movement along the same demand curve.
(g) A shift in the demand curve of a given commodity may be caused by change in any determinant of demand.
(h) Due to fall in the cost of making a bicycle, the price of the bicycle reduces, it will shift the demand curve of the bicycle towards right.
(i) Demand for a commodity may rise or fall even when price of the commodity, does not change.
(j) Demand for a good increases with the increase in the income of the consumer.
(k) Demand for a commodity always increases with the rise in the price of other commodities.
(l) If more is demanded at the same price it is called expansion in demand.
(m) Using Outley method, we can never have unitary elastic demand.
(n) Commodity with large number of substitutes will have elastic demand.
(o) Total expenditure on a commodity will always fall with the fall in its prices.
(p) In case of horizontal straight line demand curve, demand does not change even when the price changes.
(q) If a commodity has a unitary elastic demand, then according to expenditure method, total expenditure will remain constant as price rises or falls.
(r) Flatter demand curve is more elastic then the steeper demand curve at the point of intersection.
(s) Price elasticity of demand remains the same in the case of straight line demand curve touching both the axis.
(t) For a straight line demand curve, the elasticity of demand at the point where it touches prices axis will be zero.
Numerical Questions
- A consumer buys 40 units of a good at a price of Rs. 3 per unit. When pricerises to Rs. 4 per unit he buys 30 units. Calculate price elasticity of demand
ans. 0.75
2 . A consumer buys 80 units of a good at a price of Rs. 5 per unit. Suppose price elasticity of demand is (-)2. At what price will he buy 64 units
Ans. 5.50
- When price of a good falls from Rs. 5 toRs. 3 per unit, its demand rises by 40 percent. Calculate its price elasticity of demand.
Ans. Ed=1
- The price elasticity of demand for a commodity is 3. A household demands 30 units of the commodity when its price is Rs. 6 per unit. How many units of this commodity will that household demand when its price falls to Rs. 5 per unit?
Ans. Q=45units
- A consumer buys 160 units of a good at a price of Rs 8 per unit. Price falls to Rs 6 per unit. How much quantity will the consumer buy at the new price if price elasticity of demand is (-)2) ?
ans. 240 units
- A consumer buys 100 units of a good at a price of Rs. 5 per unit. When price changes he buys 140 units. What is the new price if price elasticity of demand is – 2 ? Ans. Rs.4 per unit
- The quantity demanded of a commodity at a price of Rs. 8 per unit is 600 units.Its price falls by 25 percent and quantity demanded rises by 120 units. Calculateits price elasticity of demand. Is its demand elastic? Give reason for your
Ans. 0.8
- At a price of Rs.50 per unit, the quantity demanded of a commodity is 1000units. When its price falls by 10 percent, its quantity demanded rises to 1080units. Calculate its price elasticity of demand. Is its demand inelastic? Givereasons for your answer.
Ans 0.8
- Commodity X and y have equal elasticity of demand. .The demand for X rises from 500 units to 550 units due to 20 percent fall in prices. calculate the percentage fall in the demand for Y when the prices rises by 8 percent.
Ans. 4%fall
- A price of the good falls from rs .4 to rs.3 per unit, .as a result a total expenditure on it rises from rs.200 to rs.300.find out price elasticity of demand by percentage method.
Ans. Ed=4
- Due to the 10 percent fall on the price of a commodity, the quantity demanded rises from 400 to 450 units. Calculate the elasticity of demand?
Ans. Ed=1.25
- A consumer spends rs.490 when price of a good is rs.7 per unit.His total exp increases to rs.540 when the price of a commodity falls to rs. 6 per unit. Calculate Ed by % method?
Ans. Ed=2
- The quantity demanded of a commodity rises from 800 units to 850 units when the prices fall from rs, 20 per unit to rs.19 per unit. Calculate the elasticity of demand?Ans.Ed=1.25
- Atrs, 46 per unit the demand for a commodity is 30 units. If the price increases from rs,46 to 50 per unit, the demand decreases from 30 units to 15units. Calculate the coefficient of price elasticity?
Ans. Ed=5.75
- If the price of X is rs.10 per unit, a household spends rs. 50. Calculate the price elasticity of demand if the household expenditure increases to rs.70, when the price fall to rs,7 per unit?
Ans. Ed= 3.33
- A consumer buys 40 units of a good at a price of rs.3 per unit, when the price rises to 4 per unit. Its demand falls to 30 units., calculate the price elasticity of demand by expenditure method.
Ans. Ed=1
- When the price falls by 15%, the demand expands from 80 units to 140 units. Calculate price elasticity of demand?
Ans. Ed=5
- When the price of a X falls from rs. 8 per unit to rs,6 per unit,its demand rises from 12 units to 16 units. Compare the expenditure on demand to determine whether the demand is elastic?
Ans Ed=1
- The Ed for X is twice that of Y .if the % change in prices of X and Y are 5% and 10%, what is the ratio of % change in the quantities of both the commodities?
- Calculate the price elasticity of demand in the following cases by total expenditure method.
- a) Price (rs.) Quantity demanded
8 100
10 90
ans. Ed <1
- b) Price ()rs.) Quantity demanded
8 100
10 80
ans. Ed=1
- Price elasticity of a demand for a good is -2. 40 units of a good are brought at a price of rs.10 per unit. How many units will be brought at a price of rs.11 per unit?
Ans.32 units
- Price elasticity of a demand for a commodity is -2.if the price rises from rs.10 per unit to 12 per unit, what will be the percentage change in demand?
Ans. 40%
- The price elasticity of demand is -2. The consumer buys certain quantities of a good at a price of rs.8 per unit.When the price falls he buys 50% more quantities. What will be the new price?
Ans. Rs.6 per unit
- When the price of a commodity falls from rs.8 per unit to rs.7 per unit,the quantity demanded rises from 12 units to 16 units. Compute the expenditure on the two commodities to determine whether the demand is elastic or inelastic?
Ans. Ed>1
- The price of a commodity is rs. 15 per unit, and the quantity demanded is 500 units. If the quantity demanded rises by 80 units, as a result of fall in the prices by 20 % Calculate the Ed. Is the demand inelastic?
Ans. Ed=0.8
- A consumer spends rs.90 on a good, when the price of a good is rs.9 per unit. When the price falls to rs.6 per unit he spends rs.120.Calculate the Ed by % method.
Ans.Ed=3
- When the price of the commodity X falls by rs. 2 per unit , its quantity demanded rises by 10 units, its price elasticity of demand is -1.calculate the quantity demanded at the price before change which was rs.10 per unit?
Ans- 50 units
- As a result of 5% fall in price of a good its demand rises by 12 % find out elasticity & say whether demand is elastic or inelastic & Why ?
Ans- ed=2.4
- When price of a good falls from Rs. 5 to Rs. 3 per unit, its demand risesby 40 percent. Calculate its price elasticity of demand.
Ans- ed=1
- What will be the elasticity of demand on the point
- In the middle of the demand curve b)on the X-axis c) on the Y-axis
- When the price of a good is Rs. 20 per unit, the total expenditure of a consumer is rs. 1000. When the price falls to rs.20 per unit, the total expenditure increases by 8 percent. Calculate elasticity of demand by percentage method?
Ans- ed=2
- When the price of a commodity is Rs. 7 per unit , the expenditure by a consumer is Rs. 77.if elasticity of demand is equal to 1, what will be the quantity demanded when the price rises to rs.11 per unit?
Ans- 7 units
- State the elasticity of demand in the following cases
- When the total expenditure of a consumer increases with a increase in the prices
- When the totalexpenditure decreases with increase in the prices.
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