16 Questions
When is demand considered perfectly elastic?
When a slight or zero change in price leads to an infinite change in quantity demanded
What is the value of the price elasticity of demand (Ed) in perfectly inelastic demand?
0
Perfectly elastic demand is represented by which type of line on a graph?
Horizontal line
Which of the following is an example of perfectly inelastic demand?
Salt
What type of demand is considered a purely theoretical concept?
Perfectly elastic demand
In a perfectly elastic demand scenario, what happens to the demand when there is a 10% fall in price?
Demand rises infinitely
What does it mean if the price elasticity of demand (Ed) for a good is equal to 1?
The quantity demanded changes by the same percentage as the price changes.
Which type of price elasticity of demand is indicated by a perfectly vertical demand curve?
Perfectly inelastic demand
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?
Relatively inelastic demand
For which of the following goods is demand relatively inelastic?
Medicine
What would be the Ed if a 10% increase in price leads to a 20% decrease in quantity demanded?
Ed = -2
What characterizes a good with unitary elastic demand?
The total revenue remains constant when the price changes.
Which scenario best describes relatively elastic demand?
A 10% decrease in price leads to a 15% increase in quantity demanded.
The demand curve for a relatively inelastic good is:
Steeper than a rectangular hyperbola
How would you calculate the price elasticity of demand using percentage changes in price (ΔP) and quantity demanded (ΔQ)?
Ed = $ rac{rac{ ext{Δ}Q}{Q}}{rac{ ext{Δ}P}{P}}$
Which type of elasticity is most likely associated with a luxury item like air conditioners?
Relatively elastic demand
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
Quiz about different types of price elasticity of demand, including perfectly elastic and perfectly inelastic demand, and how to calculate elasticity.
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