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Chapter 4 Elasticity of Demand Solutions

Question - 1 : - Explain price elasticity of demand.

Answer - 1 : -

The degree of responsiveness of quantity demanded to changes in price of commodity is known as price elasticity of demand.

Question - 2 : -  Consider the demand for a good. At price Rs 4, the demand for the good is 25 units. Suppose price of the good increases to Rs 5, and as a result, the demand for the good falls to 20 units. Calculate the price elasticity?

Answer - 2 : -


Question - 3 : -

Consider  the demand curve D(p) =10 – 3p. what is theelasticity at price 5/3 ?

Answer - 3 : -

Negative Sign of ED indicates that inverse relationship between price and quantity demanded.
PED = 1 [Unitary elastic demand].

Question - 4 : - Suppose the price elasticity of demand for a good is -0.2. If there is a 5% increase in the price of the good, by what percentage will the demand for the good go down?

Answer - 4 : -

Question - 5 : - Suppose the price elasticity of demand for a good is -0.2. How will the expenditure on the good be affected if there is a 10% increase in the price of the good?

Answer - 5 : - Total expenditure will rise if there is 10% rise in the price of the good since its demand is inelastic (Given ED = 0.2).

Question - 6 : - Suppose, there was 4% decrease in the price of a good and as a result, the expenditure on the goods increased by 2%. What can you say about the elasticity of demand?

Answer - 6 : - As total expenditure has increased with a decrease in price, the demand is said to be highly elastic

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