law of demand and elasticity.pdf
Transcript of law of demand and elasticity.pdf
-
7/27/2019 law of demand and elasticity.pdf
1/79
1
Law of Demand &
Elasticity of Demand
General Economics
-
7/27/2019 law of demand and elasticity.pdf
2/79
General Economics: Law of Demand andElasticity of Demand
2
Demand
Willing toPurchase at
Various Prices
during Period ofTime
Able to Purchaseat Various Prices
during Period ofTime
-
7/27/2019 law of demand and elasticity.pdf
3/79
General Economics: Law of Demand andElasticity of Demand
3
Definitions of Demand Demand refers to the Quantities of
Commodity that the Consumers are Able toBuy at each possible Price during a given
Period of Time, other things being equal.By : Ferguson
Demand is the Ability and Willingness to
buy Specific Quantity of a Good atAlternative Prices in a given Time Period,Ceteris Paribus.
By : B. R. Schiller
-
7/27/2019 law of demand and elasticity.pdf
4/79
General Economics: Law of Demand andElasticity of Demand
4
Determinants of Demand
Price of the Commodity
Price of Related Commodities
Level of Income of the Household
Taste & Preferences of Consumers
Other Factors
-
7/27/2019 law of demand and elasticity.pdf
5/79
General Economics: Law of Demand andElasticity of Demand
5
Determinants of Demand
Price of the Commodity
Ceteris paribus i.e. Other Things
Being Equal,
This Happens Because of Income &
Substitution Effect.
1D
P
-
7/27/2019 law of demand and elasticity.pdf
6/79
General Economics: Law of Demand andElasticity of Demand
6
Determinants of Demand
Price of Related Commodities
Complementary Goods e.g. Pen & Ink
Price of one GoodDemand of Other Good
Substituting Goods e.g. Tea & Coffee
Price of one Good
Demand of Other Good
-
7/27/2019 law of demand and elasticity.pdf
7/79
General Economics: Law of Demand andElasticity of Demand
7
Determinants of Demand
Level of Income of the Household
Average Money Income
Quantity Demanded of a Good
Exception: Inferior Goods
Average Money Income
Quantity Demanded of a Good
-
7/27/2019 law of demand and elasticity.pdf
8/79
General Economics: Law of Demand andElasticity of Demand
8
Determinants of Demand
Taste & Preferences of Consumers
Other Factors
Size of the Population
Composition of Population
-
7/27/2019 law of demand and elasticity.pdf
9/79
General Economics: Law of Demand andElasticity of Demand
9
Law of Demand Law of demand states that People will Buy
more at Lower Prices and Buy less at HigherPrices, Ceteris paribus, or other thingsRemaining the Same.
By : Samuelson
The Law of Demand states that QuantityDemanded Increases with a Fall in Price
and Diminishes when Price Increases, otherthings being equal.
By : Marshall
-
7/27/2019 law of demand and elasticity.pdf
10/79
General Economics: Law of Demand andElasticity of Demand
10
Assumption to Law of Demand
Law of demand holds Good when Other ThingsRemain the Same meaning thereby, the factors
affecting demand ,other then price, are assumed to
be constant.
Demand Function: Dx= f(PX, Pr, Y, T, E)where, Dx = Demand for Commodity
Px = Price of Commodity XPr = Price of Other GoodsY = Income of the ConsumerT = Tastes
E = Expectation of the Consumer
-
7/27/2019 law of demand and elasticity.pdf
11/79
General Economics: Law of Demand andElasticity of Demand
11
Explanation According to Law of Demand, Ceteris Paribus
However, this Relation is not Proportional,meaning thereby that it is not necessary
that when Price Falls by , Demand forGoods will be Doubled.
This simply indicates the Direction of Change
in Demand as a result of Change in Price.
1Quantity Demanded
Price
-
7/27/2019 law of demand and elasticity.pdf
12/79
General Economics: Law of Demand andElasticity of Demand
12
Demand Schedule Demand Schedule is a Series of
Quantities which Consumer would like to
Buy per unit of Time at Different Prices.
Two Aspects of Demand Schedule
Individual Demand Schedule
Market Demand Schedule
-
7/27/2019 law of demand and elasticity.pdf
13/79
13General Economics: Law of Demand andElasticity of Demand
Individual Demand Schedule
It is defined as aTable which shows
Quantities of a
Given Commoditywhich an Individual
Consumer will buy
at all PossiblePrices at a given
Time.
Price per unit(in Rs.)
QuantityDemanded
(Units)
1 4
2 3
3 2
4 1
-
7/27/2019 law of demand and elasticity.pdf
14/79
General Economics: Law of Demand andElasticity of Demand
14
Market Demand Schedule
It is defined as the Quantities of a GivenCommodity which all Consumers will buyat all Possible Prices at a given Moment of
Time. In Market there are manyConsumers of a Single Commodity. TheSchedule is based on the Assumption thatthere are in all, 2 Consumers A & B ofCommodity X. By aggregating theirIndividual Demand, the Market DemandSchedule is constructed.
-
7/27/2019 law of demand and elasticity.pdf
15/79
General Economics: Law of Demand andElasticity of Demand
15
Price of
Commodity X
(in Rs.)
Demand of
A
Demand of
B
Market
Demand
(Units)
1 4 5 4+5=9
2 3 4 3+4=7
3 2 3 2+3=5
4 1 2 1+2=3
It indicates that when price of X is Rs 1.00per unit, Demand of A is for 4 units and that
of B is for 5 units. Thus the Market Demand
is 9 units. As the Price Increases, Demand
Decreases.
-
7/27/2019 law of demand and elasticity.pdf
16/79
General Economics: Law of Demand andElasticity of Demand
16
Demand Curve
A Demand Curve is a Locus of Points
showing various Alternative Price-
Quantity Combinations. It shows the Inverse Relationship
between Price & Quantity Demanded.
It Slopes Downwards to the Right.
-
7/27/2019 law of demand and elasticity.pdf
17/79
General Economics: Law of Demand andElasticity of Demand
17
Individual Demand Curve
D
D
4
3
2
1
0
1 32 4
X
Y
X Axis Price (Rs.)Y Axis Quantity
DD Demand Curve
The Demand Curve
Slopes Downwards
from Left to Right,meaning thereby that
when Price is High
Demand is Low and
vice versa.
Price
Quantity
-
7/27/2019 law of demand and elasticity.pdf
18/79
General Economics: Law of Demand andElasticity of Demand
18
Market Demand Curve
D
Y
0
D
1
2
3
4
3 5 7 9
X
Quantity
Price
-
7/27/2019 law of demand and elasticity.pdf
19/79
General Economics: Law of Demand andElasticity of Demand
19
Why does Demand Curve Slope
Downward? Income Effect : It is the Effect that a Change in a
Persons Real Income caused by Change in the
Price of a Commodity has on the Quantity of that
Commodity. In other words, the Increase inDemand on Account of Increase in Real Income isknown as Income Effect.
Substitution Effect : It is the Effect that a Change inRelative Prices of Substitute Goods has on the
Quantity Demanded. Substitutes are Goods thatcan be used in place of each other.
-
7/27/2019 law of demand and elasticity.pdf
20/79
General Economics: Law of Demand andElasticity of Demand
20
Why does Demand Curve Slope
Downward?
Different Uses: Demand forCommodities with Alternative Usestends to Extend Consequent upon thefall in their prices.
Size of Consumer Group: When the Price
of a Commodity falls, then manyConsumers, who are unable to buy thatCommodity at its Previous Price, Come
Forward to buy it.
-
7/27/2019 law of demand and elasticity.pdf
21/79
General Economics: Law of Demand andElasticity of Demand
21
Exceptions to Law of Demand
Article of Distinction or Veblen Goods: Goodslike Jewellery, Diamonds & Gems are
considered as Articles of Distinction. These
Goods command More Demand when theirPrices are High.
Ignorance: Many a time, Consumers out of
sheer Ignorance or Poor Judgment consider aCommodity to be of Low Quality if its Price is
Low and of High Quality if its Price is High.
-
7/27/2019 law of demand and elasticity.pdf
22/79
General Economics: Law of Demand andElasticity of Demand
22
Exceptions to Law of Demand
Giffen Goods : Giffen Goods are those InferiorGoods whose Demand falls even when their
Prices Falls. For example, Bajra. Only those
Inferior Goods are called Giffen Goods whereLaw of Demand Fails.
Expectation of Rise or Fall in Price in Future: If
Prices are likely to Rise More in the Future theneven at the Existing Higher Price people may
Demand more Units of the Commodity in the
Present and vice versa.
-
7/27/2019 law of demand and elasticity.pdf
23/79
General Economics: Law of Demand andElasticity of Demand
23
Expansion & Contraction in Demand
Price , QD
Downward MovementAlong the Demand Curve
Expansion
Price , QD
Upward Movement Alongthe Demand Curve
Contraction
-
7/27/2019 law of demand and elasticity.pdf
24/79
General Economics: Law of Demand andElasticity of Demand
24
Expansion & Contraction in Demand
O
P`
P
P``
L M N
D
D
Y
X
Price
Quantity Demanded
Contraction of Demand
Expansion of Demand
-
7/27/2019 law of demand and elasticity.pdf
25/79
General Economics: Law of Demand andElasticity of Demand
25
Increase & Decrease in Demand
Price Same, QD due toChange in Other Factors
Rightward ShiftIncrease
Price Same, QD due toChange in Other Factors
Leftward ShiftDecrease
-
7/27/2019 law of demand and elasticity.pdf
26/79
General Economics: Law of Demand andElasticity of Demand
26
Increase & Decrease in Demand
D
D
D
DD`
D`
D`
D`
Price
Price
Quantity Demanded Quantity Demanded
Increase in Demand Decrease in Demand
i i i b i &
-
7/27/2019 law of demand and elasticity.pdf
27/79
General Economics: Law of Demand andElasticity of Demand
27
Distinction between Extension &
Increase in Demand Extension in Demand
means Rise in Demand
in Response to fall in
the Price of aCommodity, Other
things being equal.
It is expressed by the
Movement from a
Higher Point to a
Lower Point along the
same Demand Curve.
Increase in Demand
refers to the Rise in
Demand in Response to
the Change in theDeterminants of
Demand other then
Price.
It is expressed by the
Upward Shift of the
Entire Demand Curve.
Di i i b C i
-
7/27/2019 law of demand and elasticity.pdf
28/79
General Economics: Law of Demand andElasticity of Demand
28
Distinction between Contraction
& Decrease in Demand Contraction in Demand
means Fall in Demand
in Response to a Rise
in the Price of aCommodity, Other
things being Equal.
It is expressed by the
Movement from a
Lower Point to a
Higher Point on the
Same Demand Curve.
Decrease in Demand
means Fall in Demand
in Response to Change
in Determinants ofDemand, Other then
the Price.
It is expressed by a
Downward Shift of the
Entire Demand Curve.
-
7/27/2019 law of demand and elasticity.pdf
29/79
General Economics: Law of Demand andElasticity of Demand
29
Elasticity of Demand It answers the Question BY HOW MUCH? Elasticity of Demand is defined as the
Responsiveness of the Quantity Demanded of a
Good to Change on one of the Variables onwhich Demand Depends.
% Change in Q.D.E =% Change in one of the Variables
on which Demand depends
-
7/27/2019 law of demand and elasticity.pdf
30/79
General Economics: Law of Demand andElasticity of Demand
30
Types of Elasticity of Demand
PriceElasticity
IncomeElasticity
CrossElasticity
-
7/27/2019 law of demand and elasticity.pdf
31/79
General Economics: Law of Demand andElasticity of Demand
31
Price Elasticity of Demand
It is Measured as a Percentage Change in QuantityDemanded Divided by the Percentage Change in
Price, Other things Remaining Same.
% Change in Q.D.Ep =
% Change in Price
Change in Quantity Original PriceEp =
Change in Price Original Quantity
-
7/27/2019 law of demand and elasticity.pdf
32/79
General Economics: Law of Demand andElasticity of Demand
32
Price Elasticity of Demand
Where, Ep Price Elasticity
Very Small Change
P Price
Q Quantity Demanded
Note: Ep is (-)ve due to Inverse RelationshipBetween Price & Quantity Demanded.
Q PEp =P Q
D f P i El ti it f
-
7/27/2019 law of demand and elasticity.pdf
33/79
General Economics: Law of Demand andElasticity of Demand
33
Degrees of Price Elasticity of
Demand
PerfectlyElastic
E =
PerfectlyInelastic
E = 0
UnitElastic
E = 1
Morethan UnitElastic
(Elastic)
E > 1
Less thanUnitElastic
(Inelastic)
E < 1
-
7/27/2019 law of demand and elasticity.pdf
34/79
34General Economics: Law of Demand and
Elasticity of Demand
Perfectly Elastic Demand
A Perfectly Elastic Demandis one in which a LittleChange in Price will Causean Infinite Change in
Demand. A very little Rise in Price
causes the Demand to Fallto Zero and a very little Fall
in Price causes Demand toExtend to Infinity.
Under Perfect Competition,Demand Curve of a Firm is
Perfectly Elastic.
10 20 300
4
6
Y
X
D DE = infinite
Quantity
Price(Rs.
)
-
7/27/2019 law of demand and elasticity.pdf
35/79
35General Economics: Law of Demand and
Elasticity of Demand
Perfectly Inelastic Demand
Perfectly Inelastic
Demand is one in
which a Change in
Price Produces NoChange in the
Quantity Demanded.
In this case, Elasticityof Demand is Zero.
E = 0
Y
X0 42 6
2
4
6
D
D
Quantity
Price(Rs.)
-
7/27/2019 law of demand and elasticity.pdf
36/79
36General Economics: Law of Demand and
Elasticity of Demand
Unitary Elastic Demand
Unitary ElasticDemand is one in
which a % Change in
Price Produces an
Equal % Change in
Demand.
This type of Demand
Curve is called
Rectangular
Hyperbola.M N
E = 1
D
D
P
T
O
Y
X
Quantity (%)
Price(Rs.)
(%
)
Greater than Unitar Elastic
-
7/27/2019 law of demand and elasticity.pdf
37/79
37General Economics: Law of Demand and
Elasticity of Demand
Greater than Unitary Elastic
Demand Greater than Unitary
Elastic Demand is one
in which a Given
%Change in Price
Produces Relatively
more %Change in
Demand.
In this case Elasticity of
Demand is Greater than
Unitary.M N
XO
Y
P
T
E>1
D
D
Quantity (%)
Price(Rs.)(%)
Less than Unitary Elastic
-
7/27/2019 law of demand and elasticity.pdf
38/79
38General Economics: Law of Demand and
Elasticity of Demand
Less than Unitary Elastic
Demand Less than Unitary
Elastic Demand is one
in which a given %
Change in Price
Produces Relatively
Less % Change in
Demand
In this case, Elasticity
of Demand is Less then
Unitary.M N
X
Y
D
D
E< 1
T
P
O
Quantity (%)
Price(Rs.)(%)
-
7/27/2019 law of demand and elasticity.pdf
39/79
General Economics: Law of Demand andElasticity of Demand
39
Point Elasticity of Demand
Refers to Measuring the Elasticity at a Particular
Point on Demand Curve.
Makes Use of Derivative Changes Rather than
Finite Changes in Price & Quantity.
Defined As:
Where, is the derivative of Quantity w.r.t. Price
at a point on Demand Curve.
dq p
dp q
dq
dp
-
7/27/2019 law of demand and elasticity.pdf
40/79
40General Economics: Law of Demand and
Elasticity of Demand
Point Elasticity of Demand
As we Move from N
to M, Elasticity Goes
on Increasing. At MidPoint, Ep = 1, at N Ep
= 0 & at M Ep =
A
P
B
M
N
Y
X
Mid
Point
E>1
E =1
E
-
7/27/2019 law of demand and elasticity.pdf
41/79
41General Economics: Law of Demand and
Elasticity of Demand
Arc Elasticity of Demand When Elasticity is to be
found between 2 Points,
we use Arc Elasticity.
Y
XO
Quantity
Price(Rs)
1 2 1 2
1 2 1 2
q q p pElasticity = q q p p
++
Where,
p1
= Original Price
q1 = Original Quantity
p2 = New Price
q2 = New Quantity
Arc ElasticityA
B
P1
P2
Q1 Q2
-
7/27/2019 law of demand and elasticity.pdf
42/79
General Economics: Law of Demand andElasticity of Demand
42
Arc Elasticity of Demand
For Example, Find Elasticity of Radios Between:
p1 = Rs. 500 q1 = 100
p2
= Rs. 400 q2
= 150
1 2 1 2
1 2 1 2
q q p pElasticity =
q q p p
++
50 900Ep =250 100
Ep = 1.8
-
7/27/2019 law of demand and elasticity.pdf
43/79
General Economics: Law of Demand andElasticity of Demand
43
Total Expenditure (Outlay) Method
This Method was evolved by Dr. Alfred
Marshall.
According to this Method, To Measure the
Elasticity of Demand it is Essential to
Know How Much & In What Direction the
Total Expenditure has Changed as a Resultof Change in the Price of a Good.
-
7/27/2019 law of demand and elasticity.pdf
44/79
General Economics: Law of Demand andElasticity of Demand
44
Total Expenditure (Outlay) Method
Elasticity of
Demand
Price Total
Expenditure
Greater than
Unity i.e. Ep > 1
Unity
i.e. Ep
= 1
Same
Same
Unchanged
UnchangedLess than Unity
i.e. Ep < 1
-
7/27/2019 law of demand and elasticity.pdf
45/79
45General Economics: Law of Demand and
Elasticity of Demand
Total Expenditure (Outlay) MethodY
XO
P
M
N
R
TA
E>1
B
E = 1
CE
-
7/27/2019 law of demand and elasticity.pdf
46/79
General Economics: Law of Demand andElasticity of Demand 46
Determinants of Price Elasticity of
Demand
Availability of Substitutes
Position of Commodity in Consumers
Budget
Nature of Need that a Commodity Satisfies
Number of Uses to which a Commodity is
Put Period
Consumer Habits
-
7/27/2019 law of demand and elasticity.pdf
47/79
General Economics: Law of Demand andElasticity of Demand 47
Income Elasticity of Demand
Income Elasticity of Demand is the Degree of
Responsiveness of Quantity Demanded of a
Good to a Small Change in the Income of
Consumer.
Ey =% Change in Quantity Demanded
% Change in Income
D f I El ti it f
-
7/27/2019 law of demand and elasticity.pdf
48/79
General Economics: Law of Demand andElasticity of Demand 48
Degrees of Income Elasticity of
Demand
Positive Income Elasticity of Demand
- Unitary Income Elasticity of Demand
- Less than Unitary Income Elasticity of Demand
- More than Unitary Income Elasticity of Demand
Negative Income Elasticity of Demand
Zero Income Elasticity of Demand
-
7/27/2019 law of demand and elasticity.pdf
49/79
49General Economics: Law of Demand and
Elasticity of Demand
Positive Income Elasticity of Demand Income Elasticity of
Demand for a Good is
Positive, When with
an Increase in the
Income of a Consumer,his Demand for the
Good Increases and
Vice Versa. It is Positive in case of
Normal Goods.
DY
DY
Y
XQ QO
B
A
Quantity
Income
Negative Income Elasticity of
-
7/27/2019 law of demand and elasticity.pdf
50/79
50
General Economics: Law of Demand and
Elasticity of Demand
Negative Income Elasticity of
Demand Income Elasticity of
Demand is Negative
when Increase in the
Income of the
Consumer is
Accompanied by Fall in
Demand of a Good
It is Negative in case ofInferior Goods which
are known as Giffen
Goods.
DY
DY
Y
XO 21 3 4
5
10
15
20
Income
Quantity
-
7/27/2019 law of demand and elasticity.pdf
51/79
51
General Economics: Law of Demand and
Elasticity of Demand
Zero Income Elasticity of Demand
Income Elasticity ofDemand is Zero,
When Change in the
Income of Consumer
evokes No Change in
his Demand.
Demand for
Necessaries like oil,
salt, etc., have Zero
Income Elasticity of
Demand.
Y
O
DY
DY
A
B
5
10
15
20
4321 5
Quantity
Income
X
-
7/27/2019 law of demand and elasticity.pdf
52/79
General Economics: Law of Demand andElasticity of Demand 52
Cross Elasticity of Demand
Cross Elasticity of Demand is a Change in the Demand ofOne Good in Response to a Change in the Price of
Another Good.
Where, Ec = Cross Elasticity
qx = Original Q.D. of Xqx = Change in Q.D. of X
py = Original Price of Y
py = Change in Price of Y
yxc
y x
pq
E = p q
-
7/27/2019 law of demand and elasticity.pdf
53/79
53
General Economics: Law of Demand and
Elasticity of Demand
Positive Cross Elasticity of Demand
It is positive in caseof Substitute Goods.
For example, Rise in
the Price of Coffee
will lead to Increase
in Demand for Tea.
The Curve slopes
Upward from Left to
Right.X
Y
DS
DS
E
E1
P
P1
O Q Q1
Quantity of Tea
-
7/27/2019 law of demand and elasticity.pdf
54/79
54
General Economics: Law of Demand and
Elasticity of Demand
Negative Cross Elasticity of Demand
It is Negative in Caseof ComplementaryGoods.
For example, Rise inPrice of Bread willbring Down theDemand for Butter.
The Curve slopesDownwards fromLeft to Right.
DC
DC
Y
XO Q1 Q
P
P1
P
riceofBread E1
E
Quantity of Butter
-
7/27/2019 law of demand and elasticity.pdf
55/79
General Economics: Law of Demand andElasticity of Demand 55
Zero Cross Elasticity of Demand
Cross Elasticity of Demand is Zero when
Two Goods are Not Related to each
other.
For example, Rise in the Price of Wheat
will have No Effect on the Demand for
Shoes.
-
7/27/2019 law of demand and elasticity.pdf
56/79
General Economics: Law of Demand andElasticity of Demand 56
Q 1
The Concept of Elasticity of Demand
was developed by:
a) Alfred Marshallb) Edwin Camon
c) Paul Samuelsond) Fredric Bonham
-
7/27/2019 law of demand and elasticity.pdf
57/79
General Economics: Law of Demand andElasticity of Demand 57
Q 2
Demand Curve in most cases Slopes
a) Downward towards Right
b) Vertical And Parallel to Y-axis
c) Upward Towards Left
d) Horizontal And Parallel to X-axis
R d h f ll i D & A Q3 Q8
-
7/27/2019 law of demand and elasticity.pdf
58/79
General Economics: Law of Demand and
Elasticity of Demand 58
Read the following Data & Answer Q3 to Q8
XYZ are 3 Commodities where X & Y are
Complements whereas X & Z are Substitutes. A Shopkeeper sells Commodity X at Rs.40 per
piece. At this price he is able to sell 100 pieces of
X per month. After some time he decreases theprice of X to Rs. 20. Following the Price
Decrease:
He is able to sell 150 pieces of X per month
The Demand for Y increases from 25 units to 50 units
The Demand for Commodity Z decreases from 150 to
75 units
-
7/27/2019 law of demand and elasticity.pdf
59/79
General Economics: Law of Demand and
Elasticity of Demand 59
Q 3
The Price Elasticity of Demand when theprice of X decreases from Rs.40 per pieceto Rs.20 per piece will be equal to:
a) 1.5
b) 1.0
c) 1.66
d) 0.6
-
7/27/2019 law of demand and elasticity.pdf
60/79
General Economics: Law of Demand and
Elasticity of Demand 60
Q 4
The Cross Elasticity of Monthly Demand for YWhen the Price of X Decrease from Rs.40 to
Rs.20 is Equal to:
a) +1
b) -1
c) -1.5
d) +1.5
-
7/27/2019 law of demand and elasticity.pdf
61/79
General Economics: Law of Demand and
Elasticity of Demand 61
Q 5
The Cross Elasticity of Z when the Price ofX Decreases from 40 to 20 is Equal to:
a) -0.6
b) +0.6
c) -1
d) +1
-
7/27/2019 law of demand and elasticity.pdf
62/79
General Economics: Law of Demand and
Elasticity of Demand 62
Q 6
What can be said about Price Elasticityof Demand for X?
a) Demand is Unit Elastic
b) Demand is Highly Elastic
c) Demand is Perfectly Elastic
d) Demand is Inelastic
-
7/27/2019 law of demand and elasticity.pdf
63/79
General Economics: Law of Demand and
Elasticity of Demand 63
Q 7Suppose Income of the Residents of Locality
increase by 50% & the Quantity of X
Commodity increases by 20%. What is
Income Elasticity of Demand forCommodity X?
a) 0.6
b) 0.4c) 1.25
d) 1.35
-
7/27/2019 law of demand and elasticity.pdf
64/79
General Economics: Law of Demand and
Elasticity of Demand 64
Q 8
We can say that Commodity X inEconomics is a/an
a) Luxury Good
b) Inferior Good
c) Normal Good
d) None of the Above
-
7/27/2019 law of demand and elasticity.pdf
65/79
General Economics: Law of Demand and
Elasticity of Demand 65
Q 9
Positive Income Elasticity implies that as
Income Rises, Demand for the
Commodity
a) Rises
b) Falls
c) Remains Unchanged
d) Becomes Zero
-
7/27/2019 law of demand and elasticity.pdf
66/79
General Economics: Law of Demand and
Elasticity of Demand 66
Q 10
The Substitution Effect takes placedue to Change in
a) Income of the Consumer
b) Prices of the Commodity
c) Relative Prices of the Commodity
d) All of the Above
-
7/27/2019 law of demand and elasticity.pdf
67/79
General Economics: Law of Demand and
Elasticity of Demand 67
Q 11
In Case of Inferior Goods, Income
Elasticity is:
a) Zerob) Positive
c) Negatived) None
Q 12
-
7/27/2019 law of demand and elasticity.pdf
68/79
General Economics: Law of Demand and
Elasticity of Demand 68
Q 12
In Case of Giffen Goods, DemandCurve will Slope:
a) Upward
b) Downward
c) Horizontal
d) Vertical
Q 13
-
7/27/2019 law of demand and elasticity.pdf
69/79
General Economics: Law of Demand and
Elasticity of Demand 69
Q 13
Cross Elasticity of Demand betweenTea & Coffee is:
a) Positive
b) Negative
c) Zero
d) Infinity
Q 14
-
7/27/2019 law of demand and elasticity.pdf
70/79
General Economics: Law of Demand and
Elasticity of Demand 70
Q 14
The Exception to the Law of Demand are:
a) Veblen Goods
b) Giffen Goods
c) Both
d) None
Q 15
-
7/27/2019 law of demand and elasticity.pdf
71/79
General Economics: Law of Demand and
Elasticity of Demand 71
Q 15
If the Income Elasticity is Greater thanOne, the commodity is :
a) Necessityb) Luxury
c) Inferior Goods
d) None of these
Q 16
-
7/27/2019 law of demand and elasticity.pdf
72/79
General Economics: Law of Demand and
Elasticity of Demand 72
Q 16
When Quantity Demanded changes byLarger Percentage than does Price,
Elasticity is termed as:
a) Inelastic
b) Perfectly Elastic
c) Elastic
d) Perfectly Inelastic
Q 17
-
7/27/2019 law of demand and elasticity.pdf
73/79
General Economics: Law of Demand and
Elasticity of Demand 73
Q 17
If the Price of Good A increases relative tothe Price of Substitute B & C, the
Demand for:
a) B will Increase
b) C will Increase
c) B & C will Increased) B & C will Decrease
Q 18
-
7/27/2019 law of demand and elasticity.pdf
74/79
General Economics: Law of Demand and
Elasticity of Demand 74
Q 18
Contraction of Demand is the Result of:
a) Decrease in the number of Consumers
b) Increase in the Price of the Good
Concerned
c) Increase in the Prices of Other Goods
d) Decrease in the Income of Purchasers
Q 19
-
7/27/2019 law of demand and elasticity.pdf
75/79
General Economics: Law of Demand and
Elasticity of Demand 75
Q 19
In case of Straight Line Demand Curvemeeting the two axes, the Price Elasticity
of Demand at the mid-point of the line
would be:a) 0
b) 1
c) 1.5
d) 2
Q 20
-
7/27/2019 law of demand and elasticity.pdf
76/79
General Economics: Law of Demand and
Elasticity of Demand 76
Q 20
If the Demand of a Good is Inelastic, anincrease in its price will cause the Total
Expenditure of the Consumers of the
Good to:
a) Remain the Same
b) Increase
c) Decrease
d) Any of These
Q 21
-
7/27/2019 law of demand and elasticity.pdf
77/79
General Economics: Law of Demand and
Elasticity of Demand 77
Q 21
All of the Following are Determinants
of Demand Except
a) Taste & Preferencesb) Quantity Supplied
c) Incomed) Price of Related Goods
Q 22
-
7/27/2019 law of demand and elasticity.pdf
78/79
General Economics: Law of Demand and
Elasticity of Demand 78
Q 22
The Law of Demand refers to______
a) Price-Supply Relationship
b) Price-Cost Relationship
c) Price-Demand Relationship
d) Price-Income Relationship
-
7/27/2019 law of demand and elasticity.pdf
79/79
THE END
Law of Demand &Elasticity of Demand