Chapter 3 Part B
Q1. Concept of elasticity of demand and types of elasticity
of demand.
Ans:
Concept of elasticity of demand:
Elasticity of demand means the responsiveness of the demand due to
change in the determinants of demand.
Types of Elasticity:
1. Price Elasticity of Demand:
It is the responsiveness of the
demand due to change in the price only other factors remaining constant like
income, fashion etc. Price Elasticity of demand means percentage change in
quantity demanded to percentage change in the price. Symbolically
Percentage change in price
Q P
Here ∆Q= change in the quantity demanded
Q= original
quantity
∆P=
change in the price
P= original
price.
2. Income Elasticity of demand:
It is the responsiveness of the demand due to change in the income only
other factors remaining constant like price, population etc. Income Elasticity
of demand means percentage change in quantity demanded to percentage change in
income. Symbolically
Percentage change in income
Q Y
Here,
∆Q means change in demand
Q means original demand
∆Y means change in income
Y means original Income
3. Cross Elasticity of demand:
It means the responsiveness of the demand due to related and non-related
goods like substitute and complementary goods. Cross elasticity of demand means
percentage change in demand of commodity A to percentage change in price of
commodity B. Symbolically.
Percentage change in price of Commodity
B
Q3 Types of Price Elasticity of demand
Ans: There are five types
of elasticity of demand. They are as follow:
1. Perfectly Elastic
Demand:
When a slight change in the price leads to an infinite change in the
quantity demanded is called as perfectly elastic demand. Here the demand curve
is horizontally parallel to X axis. Here Ed is infinite (∞). (Diagram In the
book).
2. Perfectly Inelastic Demand:
When the price of the commodity remains the same but there is change in
the demand for that commodity is called perfectly inelastic demand. Here the
demand curve is vertically parallel to Y axis. Here Ed is zero (0). (Diagram In
the book).
3. Unitary Elastic Demand:
When the change in the demand is propionate to the change in the price
is called unitary elastic demand. Here Ed is one (1). The demand curve is
steadily slopes towards X axis or rectangular hyperbola. (Diagram In the book).
4. Relatively Elastic Demand:
When the change in the demand is more than the change in the price is
called relatively elastic demand. Here Ed is more than 1 (Ed>1). The demand
curve is flatter. (Diagram In the book).
5. Relatively Inelastic Demand:
When the change in the price is more than the change in demand is called
relatively inelastic demand. Here Ed is less than 1 (Ed<1>). The demand
curve is steeper. (Diagram In the book).
Q4 Methods to measure price elasticity of demand
Ans:
1. Ratio Method:
It is also called as proportionate or arithmetic or percentage method.
This method was developed by Prof. Fluck. In this method percentage change in
demand is divided by percentage change in price. Symbolically
Percentage change in
price
For e.g.
Price of mangoes
|
Demand (in K.g)
|
200
|
1000
|
100
|
1500
|
Here
1000 100
Ed = 1
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