OR

∆Q p
ED= ------ x ----
∆P Q

∆Q= Change in quantity P = Original price

∆P= Change in price Q = Original quantity

Questions

1) Price of a commodity changes from Rs 10 to Rs 12, as a result quantity demanded contracts

from 100 to 80 units. What is the price elasticity of demand.

2) Price of a commodity changes from Rs 25 to Rs 20, as a result quantity demanded expands

from 100 to 200 units. Calculate price elasticity of demand.

3) Price of a commodity changes from Rs 10 to Rs 15, as a result the quantity demanded

contracts by 30%. What is the price elasticity of demand.
4) When the price of a commodity changes by 10% the quantity demanded expands from 50
to 80 units. What is the price elasticity of demand.

5) The price of a commodity rises by Rs 3 and becomes Rs 15.The quantity demanded

contracts from 150 to 100.What is the elasticity of demand

6) The elasticity of demand is 2. The consumer demands 20 units of a commodity at Rs 8

per unit. At what price does the consumer demand 30 units of the same commodity.
7) Price elasticity of demand for a commodity is unity/unit elastic. When the price of the
commodity was Rs 15 consumer demanded 250 units. If the price changes to Rs 20 how much
will the consumer demand.

8) The coefficient of ED of a commodity is -0.5. When its price is Rs 10 per unit the quantity
demanded is 40 units. If the price falls to Rs 5 per unit how much will be the quantity demanded

9) A consumer buys 20 units of a commodity at Rs 10 per unit. When its price falls by 10%
the demanded rises to 22. Calculate ED.
10) A consumer spends Rs 80 on a commodity when its price is Rs 1 per unit and Rs 96 when
its price is Rs 2 per unit. Calculate ED

REVISION

1) Price of a commodity rises from Rs 2 to Rs 4 and as a result that quantity demanded

contracts from 100 to 75. What is the price of elasticity of demand?

2) A consumer buys 8 units of a commodity when its price is Rs 4 per unit. When the price
rises by 25% he buys 6 units of it, find the elasticity of demand?

3) Estimate price elasticity from the following schedule

a) Price Quantity b) Price Quantity

10 100 8 500
15 50 12 100
4) A household increases its demand of a commodity from 40 units to 50 units. When its
price falls by 10% what is the price elasticity of demand?

5) A household demands 30 units of a commodity when its price is Rs 5 per unit. Quantity
demanded falls to 25 units when the price rises to Rs 6 per unit. How much is the price
elasticity of demand

6) Per units of a commodity registers an increase of Rs 3 and becomes Rs 15 as a result of

which the demand declines from 30 units to 20 units. Calculate price elasticity

7) Price elasticity of demand of a commodity is units (1) and a household demands 50 units
of it when the price is Rs 2 per unit. At what price will the household demand 45 units of
it
8) Price of rice is Rs 4 per kg and a consumer buys 20 kgs of rice. Calculate the quantity
demanded of rice he will buy when the price rises to Rs 5 per kg and the price elasticity
for rice is one.

9) The coefficient of elasticity of demand of a good is 3. How much quantities of the

commodity will the consumer demand at price of Rs 4 per unit, if he demands 80 units of
it at Rs 5 per unit.

10) As a result of a fall in price from Rs 5 per unit to Rs 4 per unit monthly expenditure of a
household on a commodity increased from Rs 120 to Rs 160. Measure the price
elasticity of demand

11) On the basis of the following information compute price elasticity of demand
(1) When price falls from Rs 7 per kg to Rs 5
 (2) When price rises from Rs 5 per kg to Rs 7 per kg

Price Total Expenditure Quantity

8 - -
5 7000 3000
6 1200 2000
7 1500 1000
4 1600 4000

12) A consumer buys 4000 units of a good at a price of Rs 5 per unit. When the price
changes he buys 560 units. If price elasticity is (-)2 what is the new price.

13) A consumer buys 20 units of a good at Rs 10 per unit. The price elasticity of demand for
this good is (-)1. Calculate quantity demanded by the consumer when the price falls to
Rs 8 per unit.
14) The quantity demanded of a commodity at price of Rs 8 per unit is 600 units. Its price
falls by 25% and quantity demanded rises by 120 units. Calculate its price elasticity of
demand. Is its demand elastic. Give reasons for your answer.

II) Total outlay/ Total expenditure method

By observing the changes in the price of a commodity and changes in total expenditure on it
we can identify the price elasticity of demand of that commodity
Total outlay is defined as the product of the price of the commodity and the number of units
purchased of that commodity

Total outlay/ total expenditure = price x quantity

This method provides us with 3 different measurements of Ed which are as follows-

1) Demand is greater than unit elastic or Ed>1

When with a fall in price Total expenditure increases or with rise in price Total
expenditure decreases then the demand is greater than unit elastic. Here price and
outlay/expenditure move in opposite directions. They are inversely related.

(The expenditure on the good would change in opposite direction to the price change
when the percentage change in quantity is greater than the percentage change in price.
For e.g. when the price changes by 4% and quantity demanded changes by 8%).

2) Demand is unit elastic or Ed=1

When Total expenditure remains unaffected and does not vary with change in price
then demand is said to be unit elastic

(The expenditure on the good would remain unchanged when the percentage change in
quantity in equal to the percentage change in price. For e.g. 4% change in price will
lead to 4% change in demand.)

3) Demand is less than unit elastic or Ed<1

When with a rise in price the total expenditure also rises and with a fall in price the
total expenditure also falls then the demand is said to be less than unit elastic. The
price and TE move in the same direction. They are directly related.
 (The expenditure on the good would change in the same direction as the price change
if the percentage change in quantity is less than the percentage change in price. For e.g.
4% change in price will lead to 1% change in demand)

All the 3 methods of measuring Ed can be illustrated with the example give
below

Price(Rs) Quantity(kgs) TE (Rs) Ed

Case I 2 4 8 Ed>1
1 10 10
Case II 2 4 8 Ed=1
1 8 8
Case 2 4 8 Ed<1
III 1 4 4

This method can also be represented in the form of a diagram as follows-

In the above diagram TE is the total expenditure line.

When price is OP, total outlay is PA.
When price increases to OP1, total outlay also increases to P1 B. It shows Ed<1
When price increases from OP1 to OP2, total outlay remains the same i.e. P1B= P2C This
shows ED=1
Finally when the price further rises to OP3, total outlay decreases from P2C to P3D. This shows
Ed>1

Limitation – Limitation of this method is that it fails to give the exact magnitude of the elasticity
of demand
 Expenditure method

Questions

1) As the price of a product decreases by 7% the total expenditure on it goes up by 3.5%.What

can you say about the elasticity of demand for the product?

2) Using the expenditure method find the price elasticity of demand for the following-
Price per unit Quantity demanded
Rs 10 20 Kg
Rs 9 25Kg

3) Compare the elasticity of demand of commodity A and B on the basis of the following
information –

COMMODITY A COMMODITY B
Price per unit Total expenditure Price per unit Total expenditure
Rs 4 Rs 20 Rs 3 Rs 15
Rs 5 Rs 15 Rs 4 Rs 16
4) Price of a good falls from Rs 5 to Rs 4 per unit. As a result, it’s demand rises from 100
units to 125 units. Find the price elasticity of demand by total outlay method

5) Price of a commodity rises from Rs 4 per unit to Rs 5 per unit and the quantity demanded
falls from 20 units to 10 units. Using (a) proportionate method (b) Total expenditure method,
find the price elasticity of demand

6) The price of cauliflower goes up by 8% and the total expenditure by the family on
cauliflower goes up by 8%. What can we say about the elasticity of demand for the cauliflower.

7) A dentist was charging Rs 300 for a standard cleaning job and per month used to generate
total revenue equal to Rs 30,000.Dentist has since last month increased the price of dental
cleaning to Rs 350.As a result, fewer customers are now coming for dental cleaning, but the
total revenue is now Rs 33,250. From this what can we conclude about the elasticity of
demand for such a dental service
 THE INDIAN HIGH SCHOOL DUBAI
ECONOMICS – GRADE 12
UNIT II
QUESTION BANK
DEMAND
One mark questions
1. Define demand
2. What type of relationship is found between the price of a commodity and its demand?
3. Mention one determinant of demand of a commodity other than price
4. What do you mean by normal goods? Give example
5. What are inferior goods? Give an example
6. If the demand for good Y decreases as the price of other good X falls, how are the two goods
related
7. If the demand for good Y increases as the price of another good X falls, how are the two
goods related
8. If the quantity demanded of a commodity X decreases as the households income increases,
what type of good is X
9. Define demand schedule
10. Define demand curve
11. What do you mean by individual demand?
12. What is meant by market demand?
13. Mention any 2 factors affecting market demand
14. State the law of demand
15. What do you mean by substitute goods
16. Give an example for substitute goods
17. What do you mean by complementary good?
18. Give an example of complementary good
19. What are unrelated goods? Give example
20. What is meant by extension of demand?
21. What is meant by contraction of demand?
22. What do you call goods on which law of demand does not apply?
23. What term is used when more quantity is purchases with the fall in its price?
24. What term is used for a downward movement along a demand curve?
25. Name the situation in which more quantity is purchased at the same price
26. What term is used for a rightward shift of the demand curve?
27. In what direction does the demand curve shift in the case of decrease in demand?
28. In what direction will the price of one commodity and the demand for another commodity
move in the case of substitute gods?
29. What happens to the demand for substitute goods when the price of the commodity falls?
30. State one point of difference between extension of demand and increase in demand
31. When does a consumer buy more of a commodity at a given price?
32. How does an unfavourable change in taste affect the demand and demand curve for a
commodity
33. Define elasticity of demand
34. Define price elasticity of demand
35. Give the formula to measure price elasticity of demand
36. What is meant by perfectly elastic demand?
37. What is meant by perfectly inelastic demand?
38. When is elasticity of demand called unitary?
39. When is demand elastic?
40. If the demand becomes zero with a slight rise in the price, what would you call such a
demand?
41. What is the shape of the demand curve in the case of perfectly elastic demand?
42. When the proportionate change in quantity demanded is more than the proportionate change
in price, what is the elasticity of demand?
43. What is the elasticity of demand, when total outlay remains the same with the changes in
price?
44. What is the shape of demand curve when the demand is unitary elastic?
45. What do you call the curve under which area remains the same?
46. When the demand remains the same with the changes in its price, what is the elasticity of
demand and shape of the demand curve?
47. What would you say about the price elasticity of x if the quantity demanded remains
unchanged?
48. Will a downward sloping demand curve have the same or different elasticity of demand at its
different points?
49. What is elasticity of demand when price and total expenditure move in opposite direction?
50. What is price elasticity of demand at a point on the y-axis?
51. What is price elasticity of demand at mid point of the demand curve?
52. How is elasticity of demand measured by geometric method
53. What will be the value of elasticity of demand if the demand curve is a horizontal line parallel
to x-axis?
54. What will be the value of elasticity of demand if the demand curve is a vertical line parallel to
y-axis?
55. If two negatively sloped straight line demand curves cross each other, will price elasticity of
demand be equal at the point of intersection?
56. What will be the elasticity of demand for goods to which the consumer is habituated?
3 or 4 mark questions
1. Explain factors affecting demand for the commodity
2. Explain the meaning of individual demand and market demand
3. State and explain law of demand
4. What are the assumptions of law of demand
5. Why does the demand curve slope downwards?
6. State the main exceptions of law of demand
7. Distinguish between change in demand and change in quantity demanded
8. What are the causes of increase in demand?
9. What are the causes of decrease in demand?
10. Distinguish between normal goods and inferior goods
11. Distinguish between substitute goods and complementary goods
12. What will happen to the demand for a commodity if the price of its complementary good fall?
Use diagram
13. What happens to the demand for a commodity if the price of a complementary good changes?
14. With the fall in the price of substitute, the demand of goods also declines? Explain with
appropriate diagram
15. Explain the relationship between
a.Prices of other goods and demand for the given goods
b.Income of the buyers and demand for a good
16. What happens to the demand for a commodity if the price of its substitute good falls?
17. How is demand of a commodity affected by increase in the prices of other commodities
18. How is the demand of a commodity affected by an increase in the income of its buyer?
19. How is the demand of a commodity affected by a decrease in the income of its buyer?
20. The price of substitute and the demand for goods move in the same direction. Explain with an
example and diagram
21. Explain with the help of diagram the effect of the following changes on demand of a
commodity as a result of
a. Fall in the price of substitute goods
b. A fall in the income of its buyer
c. A fall in the price of complementary good
d. A rise in the income of its buyer
e. A rise in the price of complementary good
f. A rise in the price of substitute good
g. An unfavourable change in taste of the buyer for the commodity
h. A fall in the income of its buyer if the commodity is inferior
i. A fall in the price of substitute good
j. A favourable change in taste of the buyer
22. Explain the effect of the following on the demand of a good
a. Change in the income of the consumer
b. Change in price of the related goods
23. Explain the effects of increase in income of the buyers of the good X on the demand of X.
Use diagram showing demand for good X on the x- axis and price on y-axis
24. A consumer consumes good X. explain the effects of fall in the price of related goods on the
demand of X. use diagrams showing demand for good X.
25. Define market demand. State factors affecting market demand
26. Distinguish between income and substitution affect of a fall in price of a commodity.
27. Distinguish between movement along a demand curve and shift in demand curve
28. Briefly explain the nature of relationship between the demand of a good by the household and
prices of other commodities
29. How is market demand curve derived from the individual demand curves?
30. What is meant by price elasticity of demand? How is it measured? Name the methods of
measuring it.
31. Define elasticity of demand. Explain any one method of measuring it
32. Show the different degrees of elasticity of demand with the help of a diagram
33. Mention the factors affecting elasticity of demand
34. Explain the expenditure method of measuring price elasticity of demand of a commodity.
When is the demand said to be in elastic
35. Explain proportionate method of measuring elasticity of demand
36. Explain with the help of a diagram, the geometric method of measuring price elasticity of
demand
37. How does the level of price of a good affect the price elasticity of demand? Explain
38. If a product price increases, a family’s spending on the product has to increase. Defend or
Refute
39. Define price elasticity of demand for a commodity. What would be the shape of a demand
curve of a commodity when its price elasticity of demand is
a. Zeros
b. Infinite
40. Distinguish between perfectly elastic and perfectly inelastic demand
41. Distinguish between elastic and inelastic demand
42. Can you tell about the nature of demand by comparing change in price and change in total
expenditure?
43. A downward sloping straight line demand curve has different elasticities at its different
points. Explain and show it in the diagram
44. How does the availability of close substitutes of a good affect the price elasticity of demand
of that type of goods?
45. How does the nature of a good affect price elasticity of demand explain
46. Which of the following commodities have inelastic demand
a. Salt
b. A particular brand of lipstick
c. Medicines
d. Mobile phone
e. School uniform
47. What will be the price elasticity of demand be in the following cases
a. A rise in the ;price of the commodity increases the total expenditure on it
b. A rise in the price of commodity reduces the total expenditure on it
c. A change in the price of a commodity does not change the total expenditure
48. If a good can be used for many purposes, the demand for it will be elastic. Why?
49. A dentist was charging Rs 300 for a standard cleaning job and per month it used to generate
total revenue equal to Rs 30000. The dentist has since last month increased the price of dental
cleaning to Rs 350. As a result, fewer customers are now coming for dental cleaning , but the
total revenue is now Rs 33,250. From this, what can we conclude about the elasticity of demand
for such a dental service.
50. Determine how the following changes will affect market demand curve for a product
a) a new steel plant comes up in Jharkhand. Many people who were previously unemployed
in the area are now employed. How will this affect the demand curve for colour TVs and
 black and white TVs in the region.
b) In order to encourage tourism to Goa, the government of India suggests Indian Airlines to
reduce Air fare to Goa from 4 major cities. How will this effect the market demand curve for
air travel to Goa.
c) There are train and bus services between New Delhi and Jaipur. Suppose that the train fare
between the 2 cities comes down. How will this affect the demand curve for bus travel
between the 2 cities?
51. Q.1. Derive demand curve of an individual consumer from the marginal utility curve
OR
52. Explain the downward slope of consumer’s demand curve on the bases of equilibrium
condition.
Mux = Px
Ans. Consider the figure

In part (a) of the figure, the marginal utility curve is drawn which slopes downward from left
to right because of the operation of the law of diminishing marginal utility.
Steps involved in the derivation of Demand Curve.
• The deviation of demand curve involves the following steps :
• Take three consumption levels as Q1, Q2 & Q3
• At OQ1 quantity of consumption, the marginal utility is MU1. For the individual to be
in equilibrium, price must be equal to OP1. Hence, at OP1, consumer demands OQ1
quantity. This price-quantity combination is given by point Q on the demand curve in
part (b) of the figure.
• When OQ2 quantity of X is consumed, marginal utility decreases to MU2 which is
equal to lower price OP2. Thus, at OP2 price, consumer demands, OQ2 quantity. This
price-quantity combination is given by another point R on the demand curve.
• Similarly, when OQ3 quantity is consumed, marginal utility further decreases to MU3.
Consumer will buy OQ3 quantity only at OP3 price which is shown by point S on the demand
curve.
• By joining these points — Q, R and S, we get the demand curve of an individual consumer.
 LINEAR DEMAND AND SUPPLY EQUATIONS

Qd = a-bp
Quantity of
good Price
Quantity
Demanded demanded
when price Change in
is zero quantity
demanded due to
change in price. It
shows how
demand changes
when price
changes
b = ΔQ/ ΔP
(Negative sign is
important)

Demand schedule can be created with this equation

Example:

Qd=800-60p 800 pizzas

are
demanded For every one Rupee
when price increase the demand
is zero for pizza will fall by
60 units
 Price Quantity demanded
0 Qd = 800-60(0) = 800
2 Qd = 800-60(2) = 680
4 Qd = 800-60(4) = 560
6 Qd = 800-60(6) = 440
8 Qd = 800-60(8) = 320
10 Qd = 800-60(10)= 200

Example:
Qd = 1000-20p
The equation tells us the a= 1,000 which is constant and is the value of Qd when price = 0
Every time price changes by 10 units, Qd changes by 200 units. Thus
b = ΔQ/ ΔP = 200/10=20
Or, slope of demand curve = ΔP/ ΔQ = 10/200= 1/20 = 0.05

Price Quantity demanded

10 Qd = 1000-20(10) = 800
20 Qd = 1000-20(20) = 600
30 Qd = 1000-20(30) = 400
40 Qd = 1000-20(40) = 200
50 Qd = 1000-20(50) = 0

Q1) Demand equation is given as: Qd = a-bp

(i)What is there in this equation that makes demand curve a straight line?
Ans) It is the constant value of ‘b’ that makes demand curve a straight line.
‘b’ indicates the rate at which Qd changes in response to a change in price
(ii) What happens to demand curve in case ‘a’ increases?
Ans) Demand curve will shift to the right.

(iii) What makes the demand curve slope downwards?

Ans) The inverse relation between the price and quantity demanded makes the demand curve
slope downwards.

Q2) Suppose there are 2 consumers in the market for a good and their demand
functions are as follows:
Qd1 = 20-p for any price less than or equal to 20, and 0 at any price greater than 20
Qd2 = 30-2p for any price less than or equal to 15 and 0 at any price greater than 15
Find the market demand function
Ans) Market demand function is a horizontal summation of individual demand functions.
Thus,
Market demand function = Qd1 + Qd2
Md = 20-p + 30 -2p
= 50-3p
Hence Market demand function is 50-3p for any price greater than 15 and less than or equal
to 20

Q3) Linear demand function is as follows –

60= a -5(28)
Find the value of ‘a’
Ans) 60= a-140
a= 140+60
a= 200
Qd= 200-5p

Q4) Linear demand function is given as –

Qd= 40-10p
(i) Derive market demand function when there are 50 consumers in the market
Ans) Market demand = (40-10p).50
= 2000-500p
(ii)Calculate quantity demanded for an individual consumer when p=2
Ans) Qd = 40-10(2)
= 40-20 = 20

Slope of a Demand Curve

Slope of a demand curve measures the rate at which demand changes with respect to its price.
It is equal to (-) ∆p/ ∆q

Demand curve normally slopes downwards, indicating negative or inverse relationship

between price of a commodity and its quantity demanded

Diagram

In the above diagram straight line demand curve dd indicates linear demand function
Slope of demand curve = (-)∆p/ ∆q = (-) ab/bc
Slope is constant at all points on the demand curve dd because slope of a straight line is constant