Price Elasticity of Demand for CUET Economics

AnswerB · how much the quantity demanded responds to a change in the good's price

1. It is the degree of responsiveness of quantity demanded to the good's own price.

AnswerD · percentage change in quantity demanded ÷ percentage change in price

1. eₚ = (ΔQ ÷ Q × 100) ÷ (ΔP ÷ P × 100), which simplifies to (ΔQ ÷ ΔP) × (P ÷ Q).

2. It is usually read without its minus sign, since price and quantity move in opposite directions.

AnswerB · 1.25

1. % change in quantity = (50 − 40) ÷ 40 × 100 = 25%.

2. % change in price = (8 − 10) ÷ 10 × 100 = −20%.

3. eₚ = 25 ÷ 20 = 1.25 (ignoring the sign).

AnswerA · 0.5

1. % change in quantity = −10 ÷ 100 × 100 = −10%.

2. % change in price = 1 ÷ 5 × 100 = 20%.

3. eₚ = 10 ÷ 20 = 0.5: demand is inelastic.

AnswerA · unitary elastic, eₚ = 1

1. % change in quantity = −50 ÷ 200 = −25%. % change in price = 5 ÷ 20 = 25%.

2. eₚ = 25 ÷ 25 = 1: unitary elastic.

AnswerC · rise by 20%

1. % change in quantity = eₚ × % change in price = 2 × 10% = 20%.

2. A price fall raises the quantity demanded, so it rises by 20%.

AnswerB · fall by 4%

1. % change in quantity = 0.8 × 5% = 4%.

2. A price rise lowers the quantity demanded, so it falls by 4%.

AnswerC · 4

1. At P = 8, Q = 100 − 80 = 20. The slope term ΔQ ÷ ΔP = 10 (ignoring the sign).

2. eₚ = (ΔQ ÷ ΔP) × (P ÷ Q) = 10 × 8 ÷ 20 = 4.

AnswerA · So that it does not depend on the units in which price and quantity are measured

1. A change of 1 kg or 1,000 g is the same change, but the raw numbers differ; percentages do not.

2. A unit-free measure lets the elasticities of different goods be compared.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Both are true.

2. Because a price rise comes with a fall in quantity (R), the ratio of their percentage changes is negative (A).

AnswerB · inelastic, eₚ = 0.5

1. eₚ = 10% ÷ 20% = 0.5, less than 1: inelastic.

AnswerC · 2

1. % change in quantity = 100 ÷ 500 = 20%. % change in price = 4 ÷ 40 = 10%.

2. eₚ = 20 ÷ 10 = 2.

AnswerB · 0

1. % change in quantity = 0, so eₚ = 0 ÷ 5 = 0: perfectly inelastic.

AnswerA · Only I

1. 1.5 × 2% = 3%: I is true.

2. 0.5 × 2% = 1%, not 4%: II is false.

AnswerC · 130

1. % change in price = (8 − 10) ÷ 10 = −20%.

2. % change in quantity = 1.5 × 20% = 30%, a rise.

3. New quantity = 100 × 1.30 = 130 units.

AnswerC · By ₹5, to ₹45

1. % change in quantity = (480 − 400) ÷ 400 = 20%.

2. % change in price needed = 20% ÷ 2 = 10%.

3. 10% of ₹50 is ₹5, so the price must fall to ₹45.

AnswerB · ₹5

1. % change in quantity = (90 − 120) ÷ 120 = −25%.

2. With eₚ = 1, price must have risen by 25%: 4 × 1.25 = ₹5.

AnswerA · 880

1. % change in quantity = 1.2 × 10% = 12%, a fall.

2. New quantity = 1,000 × 0.88 = 880.

AnswerD · A is false, but R is true.

1. A is false: 0.4 is less than 1, so demand is inelastic.

2. R correctly states the rule.

AnswerA · 0.5

1. At P = 5, Q = 60 − 20 = 40; the slope term ΔQ ÷ ΔP = 4.

2. eₚ = 4 × 5 ÷ 40 = 0.5.

AnswerB · ₹7.50

1. eₚ = 4P ÷ (60 − 4P) = 1 when 4P = 60 − 4P, so P = ₹7.50.

2. That is the midpoint of the line, where Q = 30.

AnswerD · elastic (eₚ > 1)

1. Spending = price × quantity. If spending rises when price falls, quantity rose by a larger percentage than price fell.

2. That is elastic demand.

AnswerC · unitary elastic

1. Unchanged spending means quantity changed by exactly the same percentage as price, in the opposite direction: eₚ = 1.

AnswerA · inelastic, because spending rises from ₹100 to ₹120

1. Spending before = 20 × 5 = ₹100; after = 25 × 4.8 = ₹120.

2. Price and spending move in the same direction, so demand is inelastic.

AnswerB · Elastic: spending rises from ₹200 to ₹240

1. Spending at ₹10 = 10 × 20 = ₹200; at ₹8 = 8 × 30 = ₹240.

2. Price falls and spending rises: elastic.

AnswerD · Unitary elastic: spending stays at ₹240

1. Spending at ₹6 = 6 × 40 = ₹240; at ₹4 = 4 × 60 = ₹240.

2. Spending is unchanged, so demand is unitary elastic over this range.

AnswerA · Inelastic: spending falls from ₹240 to ₹200

1. Spending at ₹4 = ₹240; at ₹2 = 2 × 100 = ₹200.

2. Price falls and spending falls too: inelastic.

AnswerD · inelastic

1. Buyers' spending is the seller's revenue. Price down and spending down means demand is inelastic.

AnswerA · Only I

1. I is true: with elastic demand, quantity falls by a larger percentage than price rises.

2. II is false: with inelastic demand, quantity falls less, so spending rises.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Both are true.

2. Because sales hardly fall when the tax raises the price (R), the tax keeps a large base and brings in more revenue (A).

AnswerD · perfectly inelastic: 100 units at both prices

1. Quantity: 1,000 ÷ 10 = 100 and 1,200 ÷ 12 = 100. Spending rises exactly in proportion to price.

2. Quantity has not changed at all: eₚ = 0.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Both are true, and R explains A: revenue = price × quantity, and the quantity gain outweighs the price cut.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Both are true.

2. On a rectangular hyperbola, price × quantity is constant at every point, which is exactly why spending never changes: R explains A.

AnswerC · unitary elastic: spending stays at ₹5,000

1. Before: 50 × 100 = ₹5,000. After: 40 × 125 = ₹5,000.

2. Unchanged spending: unitary elastic.

AnswerB · infinite: perfectly elastic

1. At ₹10 buyers take any quantity; at the slightest rise above ₹10 they take nothing.

2. An infinite response to a tiny price change is perfectly elastic demand.

AnswerC · zero: perfectly inelastic

1. Whatever the price, the quantity demanded stays at 40.

2. No change in quantity means a percentage change of 0, so eₚ = 0.

AnswerC · Unitary elastic, because spending is ₹200 at every point

1. At A: 10 × 20 = ₹200. At B: 5 × 40 = ₹200. Spending is the same at every point of the curve.

2. Unchanged spending when price changes is unitary elasticity; such a curve is a rectangular hyperbola.

AnswerB · the percentage change in quantity demanded is greater than the percentage change in price

1. eₚ > 1 means quantity responds more than in proportion to price.

AnswerD · A-II, B-IV, C-I, D-III

1. 0 is perfectly inelastic; between 0 and 1 is inelastic.

2. 1 is unitary; infinity is perfectly elastic.

AnswerC · 1

1. For Qd = 100 − 10P, eₚ = 10 × P ÷ Q.

2. At M, P = 5 and Q = 50: eₚ = 10 × 5 ÷ 50 = 1. The midpoint of a straight-line demand curve always has unitary elasticity.

AnswerC · Both I and II

1. A vertical curve runs parallel to the price (vertical) axis: perfectly inelastic. I is true.

2. A horizontal curve runs parallel to the quantity (horizontal) axis: perfectly elastic. II is true.

AnswerC · 4

1. At R, P = 8 and Q = 20.

2. eₚ = 10 × 8 ÷ 20 = 4: elastic, as everywhere above the midpoint.

AnswerA · a rectangular hyperbola, with eₚ = 1 throughout

1. Constant P × Q is the definition of a rectangular hyperbola, and it means unitary elasticity everywhere.

2. A straight line has eₚ = 1 only at its midpoint.

AnswerA · 0.25

1. At S, P = 2 and Q = 80.

2. eₚ = 10 × 2 ÷ 80 = 0.25: inelastic, as everywhere below the midpoint.

AnswerA · different at each point: above 1 above the midpoint, below 1 below it

1. Elasticity = slope term × P ÷ Q. The slope term is fixed, but P ÷ Q falls as we move down the line.

2. So eₚ is 4 at R, 1 at M and 0.25 at S: infinite where the line meets the price axis, zero where it meets the quantity axis.

AnswerD · A is false, but R is true.

1. A is false: at the same price, the curve further out has a larger quantity, so P ÷ Q, and hence elasticity, is smaller.

2. R is true, but equal slopes do not give equal elasticities.

AnswerA · Where the curve meets the quantity axis

1. At the quantity axis, P = 0, so eₚ = slope term × 0 ÷ Q = 0.

2. At the price axis, Q = 0, so eₚ is infinite.

AnswerC · elastic, since every point above the midpoint has eₚ > 1

1. On a straight-line demand curve, eₚ falls from infinity at the price axis to 1 at the midpoint.

2. R (eₚ = 4) to M (eₚ = 1) is all on the upper half, so demand is elastic there.

AnswerD · elastic

1. If its price rises, buyers can easily switch to a substitute, so quantity falls a lot.

AnswerA · inelastic

1. Necessities are bought in roughly the same amounts whatever the price, so quantity responds little.

2. Salt is also a tiny share of the budget, which makes demand even less elastic.

AnswerC · more elastic

1. A price change on a big item makes a big dent in the budget, so buyers react strongly.

AnswerB · buyers have more time to find substitutes and change habits

1. Right after a price rise people may keep buying out of habit; given time, they adjust and switch.

AnswerB · relatively elastic

1. When its price falls, it is used in more ways, and when it rises, the less important uses are dropped.

2. So quantity responds more to price than for a single-use good.

AnswerA · A particular brand of biscuits

1. One brand of biscuits has many close substitutes in other brands.

2. Salt and matchboxes are cheap necessities and life-saving medicine has no substitute, so their demand is inelastic.

AnswerD · inelastic

1. A habit keeps buyers purchasing much the same quantity even when the price rises.

AnswerC · A is true, but R is false.

1. A is true: salt is a cheap necessity.

2. R is false: salt has no close substitute, which is one reason its demand is inelastic.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Both are true.

2. Being able to go without a luxury (R) is exactly what makes its quantity respond strongly to price (A).

AnswerD · A-III, B-I, C-IV, D-II

1. A soap brand has close substitutes: elastic. Insulin has none and is vital: nearly perfectly inelastic.

2. One farmer can sell all he wants at the market price: perfectly elastic for him. Holiday flights can be postponed: elastic.

AnswerB · More people switching to electric vehicles and public transport

1. More substitutes let buyers cut back more when the price rises.

AnswerA · Only I

1. I is true: food as a whole has no substitute; one brand has many.

2. II is false for the same reason.

AnswerC · elastic

1. If the price rises, buyers can wait for a better time, so current purchases drop sharply.

AnswerA · Only I

1. I is true: a price change on a tiny item barely affects the budget.

2. II is false: without a substitute, buyers have nowhere to switch, so demand is inelastic.