MCQs - Elasticity of Demand - Commerce PDF Download

Q.1 On all points of rectangular hyperbola, elasticity of demand is equal in:

(a) Unity

(b) Zero
(c) Infinity
(d) Greater than one
Ans: A
Solution: Rectangular hyperbola is a curve under which all rectangular areas are equal. When the elasticity of demand is equal to unity (ed = 1) at all points of demand curve, then the demand curve is rectangular hyperbola. It is a downward sloping curve as given in figure below.

In the case of any two points of A and B on the curve, each rectangular area shows total expenditure on the good. Thus, the total expenditure on the good remains constant even as the price of a good increases or decreases.

Q.2 Slope of the demand curve is estimated as:
(a) - Dp/Dq
(b) Dp/Dq
(c) Dq/Dp
(d) p/q
Ans: A

Q.3 The elasticity of demand for a product will not be higher when:

(a) it is considered a necessity by its buyers
(b) it has several uses.

(c) more substitutes for the product are available
(d) it is an expensive commodity
Ans: A
Solution: The more discretionary a purchase is, the more its quantity of demand will fall in response to price rises. That is, the product demand has greater elasticity.

Q.4 Which of the following will have elastic demand?

(a) Matchbox
(b) NCERT Textbooks
(c) Medicines
(d) Air Conditioners
Ans: D

Q.5 Which of the following statements is incorrect:

(a) Higher numerical value of elasticity means larger effect of a price change on the quantity demanded.
(b) Elasticity of demand can vary only between  - 1 and + 1.

(c) The demand curves for all commodities which have unitary elastic demand will be rectangular hyperbola.

(d) Elasticity of demand establishes a quantitative relationship between quantity demanded of a commodity and its price, while other factors remain constant.
Ans: B
Solution:

• Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded or supplied divided by the percentage change in price.
• Elasticity can be described as elastic or very responsive unit elastic, or inelastic not very responsive.
• Elastic demand or supply curves indicate that the quantity demanded or supplied responds to price changes in a greater than proportional manner.
• An inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied.
• Unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded or supplied.
  

Q.6 The demand for a product would be more inelastic:
(a) the greater is the time under consideration
(b) the less expensive is the product 

(c) the greater is the number of substitutes available
(d) all the above
Ans: B
Solution: In general, the greater the necessity of the product, the less elastic, or more inelastic, the demand will be, because substitutes are limited. The more luxurious the product is, the more elastic demand will be.

Q.7 Relationship between price and demand in elasticity of demand is of ........... nature?

(a) Qualitative
(b) Quantitative
(c) Competitive
(d) None of these
Ans: B
Solution: The price elasticity of demand is the percentage change in the quantity demanded of a good or service divided by the percentage change in the price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.

Q.8 What would be the nature of elasticity of demand for Giffen Goods?
(a) Positive
(b) Negative
(c) Neutral
(d) None of these
Ans: A
Solution: A Giffen good is a product that people consume more as the price rises, which means that its demand increases as the price increases. Therefore the shape of a giffen good would be upward sloping just as the usual supply curve, up to the point at which the price of a giffen good takes up all the income.

Q.9 Which of following has elastic nature of demand?

(a) Electricity
(b) Fruits
(c) Medicines
(d) Pulses.
Ans: B

Q.10 Keeping the health of the public in mind, the government imposes heavy tax on the consumption of a good. Its restricted consumption will be determined by whether its price elasticity of demand is : (Choose the correct alternative)

(a) 1
(b) More than 1
(c) Less than 1
(d) Zero
Ans: B

Q.11 Identify the good whose demand would not respond to rise in its price : 

(a) salt
(b) life saving drugs
(c) textbooks
(d) All of these
Ans: D

Q.12 Keeping the welfare of the masses of the masses in mind, the government should be very considerate in fixing the prices of life savings drugs, as their price elasticity of demand is : 

(a) Zero
(b) 1
(c) Less than 1
(d) More than one
Ans: C

Q.13 In case of perfectly inelastic demand for a commodity, its quantity demanded : 

(a) remains the same
(b) increases.
(c) decreases
(d) None of these
Ans: C
Solution: Perfectly Inelastic Demand: When demand is perfectly inelastic, quantity demanded for a good does not change in response to a change in price. Finally, demand is said to be perfectly elastic when the PED coefficient is equal to infinity. When demand is perfectly elastic, buyers will only buy at one price and no other.

Q.14 Suppose there is downward sloping straight line demand curve which is 8 cm long touching both the axis. Then, price elasticity of demand at point 4 cm away on demand curve is
(a) 2
(b) 1
(c) 0.5
(d) cannot be determined
Ans: B
Explanation: 

Q.15 The subject matter of elasticity of demand is :

(a) direction of change in quantity in response to change in own price of the commodity

(b) degree of change in response to change in own price of the commodity

(c) absolute change in quantity in response to change in own price of the commodity 

(d) none of these
Ans: B

Q.16 As the flatness of the demand curve increases, the elasticity of demand becomes:

(a) higher
(b) lower
(c) equal to infinity
(d) equal to zero
Ans: A
Solution: Elastic demand will mean that when price increases, demand will fall by a greater percentage than the price increased. This means a fall in revenue.

• The degree of elasticity of demand helps in defining the shape and slope of a demand curve. Therefore, the elasticity of demand can be determined by the slope of the demand curve. The flatter the slope of the demand curve, the higher the elasticity of demand.
• When demand is perfectly elastic (or elasticity of demand is infinity), equilibrium price remains unchanged with an increase or decrease in supply. When demand is perfectly elastic, buyers will only buy at one price and no other.
• Perfectly elastic demand is a theoretical concept and cannot be applied in a real situation. However, it can be applied in cases, such as a perfectly competitive market and homogeneity products. In such cases, the demand for a product of an organization is assumed to be perfectly elastic.
• From an organization’s point of view, in a perfectly elastic demand situation, the organization can sell as much as it wants as consumers are ready to purchase a large quantity of products. However, a slight increase in price would stop the demand. 
• Hence, if elasticity of demand is infinity, equilibrium price remains the same no matter supply increases or decreases.
  

Q.17 For a commodity, delta P / P = (-) 0.2 and elasticity of demand = (-) 0.3, the percentage change in quantity demanded is:
(a) 6
(b) 40
(c) (-) 6
(d) 10
Ans: A
Solution: 
Percentage change in price = 

Percentage change in quantity demanded = 0.3 × −20 per cent = 6 per cent
Percentage change in quantity demanded = 6%.

- You can cover the concepts of Class 12 Micro Economics by going through the course: Crash Course of Micro Economics -Class 12 

- You can attempt reason based & extra questions of Elasticity of Demand here.