CSS+PMS ECONOMICS NOTES & MCQs

BY
Akhtar Saba Khan (M. Sc Economics, GPGC Bannu)

ELASTICITY OF DEMAND1

1. PRICE-ELASTICITY2 COEFFICIENT
Percentage change in quantity demanded %Qd
Ed = =
Percentage change in price % P
OR
ℎ ℎ
Ed = ÷

2. CROSS ELASTICITY3 OF DEMAND

Percentage change in quantity demandeda %Qda
Eab = =
Percentage change in priceb %Pb

3. POINT ELASTICITY OF DEMAND

-
4. ARC ELASTICITY OF DEMAND
-
INCOME ELASTICITY OF DEMAND
Commodities Coefficient of income elasticity Impact on expenditure
Necessities Less than unity (Ey < 1) Less than proportionate change in expenditure

SUMMARY PRICE ELASTICITY OF DEMAND

1. Elastic demand, if the value of elasticity is greater than 1. (Demand curve is flatter) E>-1
2. Perfectly inelastic demand, if the value of elasticity is zero. (Demand curve vertical) E=0

SUMMARY CROSS-ELASTICITY OF DEMAND

1. In case of complementary goods, elasticity of demand is negative.
2. Not related goods, elasticity of demand are zero.

1. Concept of elasticity of demand4 was introduced by:

a. Alfred Marshall
b. Adam Smith
c. R. G. D Allen
d. J. R. Hicks
2. A line demand curve has as:
a. Varying elasticity throughout5
1
The concept of elasticity of demand was introduced by Marshall in his book “Principles of Economics” in 1890.
Price elasticity of demand is also called own elasticity of demand. According to Prof. Lipsey “Elasticity of demand
may be defined as the ration of percentage change in demand to the percentage change in price.”
2
Elasticity is a measure of the responsiveness of one variable to another.
3
According to William A. McEachern, “Elasticity is another word for responsiveness.”
4
The law of demand explains that demand will change due to a change in the price of the commodity. But it does
not explain the rate at which demand changes to a change in price
 CSS+PMS ECONOMICS NOTES & MCQs
BY
Akhtar Saba Khan (M. Sc Economics, GPGC Bannu)
b. Constant elasticity throughout
c. Zero elasticity throughout
d. Positive elasticity throughout
3. The coefficient6 of the price elasticity of demand is:
a. Always negative or zero
b. Always positive or zero
c. Positive only when the supply curve slopes upward
d. Sometimes positive and sometimes negative

5
Along a straight line (linear) demand curve, elasticity is different points. It may vary from zero to infinity.
6
The coefficient of the price elasticity of demand is always positive or zero (0<Ep<1).