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Questions and Answers
When is demand considered perfectly elastic?
When is demand considered perfectly elastic?
- When a significant change in price leads to a proportionate change in quantity demanded
- When a slight or zero change in price leads to an infinite change in quantity demanded (correct)
- When a slight change in price leads to a small change in quantity demanded
- When a percentage change in price has no effect on the quantity demanded
What is the value of the price elasticity of demand (Ed) in perfectly inelastic demand?
What is the value of the price elasticity of demand (Ed) in perfectly inelastic demand?
- Infinity
- 0 (correct)
- 1
- -1
Perfectly elastic demand is represented by which type of line on a graph?
Perfectly elastic demand is represented by which type of line on a graph?
- Horizontal line (correct)
- Curved line
- Vertical line
- Diagonal line
Which of the following is an example of perfectly inelastic demand?
Which of the following is an example of perfectly inelastic demand?
What type of demand is considered a purely theoretical concept?
What type of demand is considered a purely theoretical concept?
In a perfectly elastic demand scenario, what happens to the demand when there is a 10% fall in price?
In a perfectly elastic demand scenario, what happens to the demand when there is a 10% fall in price?
What does it mean if the price elasticity of demand (Ed) for a good is equal to 1?
What does it mean if the price elasticity of demand (Ed) for a good is equal to 1?
Which type of price elasticity of demand is indicated by a perfectly vertical demand curve?
Which type of price elasticity of demand is indicated by a perfectly vertical demand curve?
If the price of a good increases from ₹20 to ₹25 and the quantity demanded decreases from 10 kg to 9 kg, what type of price elasticity of demand does this represent?
If the price of a good increases from ₹20 to ₹25 and the quantity demanded decreases from 10 kg to 9 kg, what type of price elasticity of demand does this represent?
For which of the following goods is demand relatively inelastic?
For which of the following goods is demand relatively inelastic?
What would be the Ed if a 10% increase in price leads to a 20% decrease in quantity demanded?
What would be the Ed if a 10% increase in price leads to a 20% decrease in quantity demanded?
What characterizes a good with unitary elastic demand?
What characterizes a good with unitary elastic demand?
Which scenario best describes relatively elastic demand?
Which scenario best describes relatively elastic demand?
The demand curve for a relatively inelastic good is:
The demand curve for a relatively inelastic good is:
How would you calculate the price elasticity of demand using percentage changes in price (ΔP) and quantity demanded (ΔQ)?
How would you calculate the price elasticity of demand using percentage changes in price (ΔP) and quantity demanded (ΔQ)?
Which type of elasticity is most likely associated with a luxury item like air conditioners?
Which type of elasticity is most likely associated with a luxury item like air conditioners?
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Study Notes
Types of Price Elasticity of Demand
Perfectly Elastic Demand (Ed = ∞)
- A small or zero change in price leads to an infinite change in the quantity demanded
- Theoretical concept, not practical in real-life scenarios
- Example: 10% fall in price may lead to an infinite rise in demand
- Formula: Ed = ∞
Perfectly Inelastic Demand (Ed = 0)
- A percentage change in price has no effect on the quantity demanded
- Rarely occurs in practice
- Examples: demand for salt, milk
- Formula: Ed = 0
- Example: 20% fall in price will have no effect on quantity demanded
Demand Curve for Perfectly Elastic Demand
- Graphical representation: horizontal line parallel to the X-axis
- Price remains the same regardless of the quantity demanded
- Variables: P (price) and X (quantity demanded)
Price Elasticity of Demand
What is Price Elasticity of Demand?
- Measures the responsiveness of quantity demanded to a change in price.
- It shows how much the quantity demanded changes in response to a change in price.
Types of Price Elasticity of Demand
- Perfectly Inelastic Demand: Quantity demanded remains unchanged despite price changes, represented by a vertical line on a graph.
- Unitary Elastic Demand: Percentage change in quantity demanded equals percentage change in price, represented by a rectangular hyperbola on a graph.
- Relatively Elastic Demand: Percentage change in quantity demanded is greater than percentage change in price, represented by a flatter graph than a rectangular hyperbola.
- Relatively Inelastic Demand: Percentage change in quantity demanded is less than percentage change in price, represented by a steeper graph than a rectangular hyperbola.
Formula for Price Elasticity of Demand
- $Ed = \frac{% \Delta Q}{% \Delta P}$
- Where:
- $Ed$ is the price elasticity of demand
- $% \Delta Q$ is the percentage change in quantity demanded
- $% \Delta P$ is the percentage change in price
Numerical Example
- Original price: ₹20
- Original quantity demanded: 10 kg
- New price: ₹25
- New quantity demanded: 9 kg
- Ed = -0.4, indicating relatively inelastic demand
Types of Elasticity of Demand
- Perfectly Inelastic: No change in demand despite price changes (e.g., medicine, school uniforms)
- Unitary Elastic: Change in demand equals change in price
- Relatively Elastic: Change in demand is greater than change in price (e.g., cosmetics, air conditioners)
- Relatively Inelastic: Change in demand is less than change in price
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