Reason Based & Extra Questions - Elasticity of Demand - Commerce PDF Download

Reason Based Question’s

(Q1) Elasticity of demand refers to change in quantity consequent upon change in price of the commodity.
Ans: F 

(Q2) If price elasticity of demand is zero, it means expenditure on the commodity does not change with change in price of the commodity.
Ans: F

(Q3) Elasticity of demand (with respect to price of the commodity) is constant along a straight line demand curve.  
Ans:  F

(Q4) A vertical straight line demand curve shows that demand rises to infinity even when price remains constant. 
Ans: F

(Q5) From a point of intersection, a flatter demand curve shows greater elasticity of demand than a steep demand curve. 
Ans: T

(Q6) Complementary goods often exhibit low elasticity of demand.
Ans: T

(Q7) Demand for all food items is inelastic.

Ans: False.  Although food is necessity but demand for specific food item like Pizza, Burger, etc. is elastic due to availability of its many substitutes.

(Q8) When elasticity of demand is infinity, slope of demand curve will also be infinity.

Ans: False.              1    X   P

                               slope       Q

Therefore, when elasticity of demand is infinity, slope of demand curve will be zero.

(Q9) Demand for a products likely to be more responsive to a change in the price over a short period.
Ans: F 

(Q10) Lower the price of a good, lower is likely to be its elasticity. 
Ans: T

(Q11) If the value of slope of the demand curve is zero, the coefficient of price elasticity of demand will be zero.
Ans: F

EXTRA QUESTION’s

(Q1) Demand for salt is nearly perfectly inelastic . If the government imposes a tax of 10% on salt what shall be the effect on quantity demanded of salt ? Why ?                 

Ans: unchanged

(Q2) Rank the following numbers in ascending order :

    1.0, 0.1, 0.01, 0, -0.1, -0.11, 3.0, 2.99 

Ans: -0.11, -0.1, 0, 0.01, 0.1, 1.0, 2.99 and 3.0.

(Q3) Draw(a) a demand curve which has unit elasticity everywhere, and 

(b) another which has unit elasticity only at a single point.

Ans: (a) In this case, the demand curve, will take the shape of a rectangular hyperbola.

(b) In case of downward sloping straight line demand curve at the midpoint 

(Q4) ‘Elasticity of demand at different points on straight line downward sloping demand curve is different whereas same on at any point taken on a hyperbolic demand curve’. Comment.

Ans: Same as Q3

(Q5) If complementary goods are of inelastic nature, the competitve goods are of elastic nature. Comment

Ans: Complementary goods like car & petrol are of inelastic nature because if one commodity is demanded, the other related good becomes a necessity .  But competitive goods have many substitutes. If price of one commodity rises consumer will shift to its         alternative. Hence competitive goods are of elastic nature.

(Q6) The demand for cooking gas is not falling despite of regular hike in the price of cooking gas. What will be elasticity of demand for cooking gas ? Explain giving suitable reasons in support of your answer.

Ans: inelastic , cooking gas is a necessary good, its demand can’t fall or rise with a change in its price, therefore its demand is not responsive much to change in its price. 

(Q7) ‘Prices of imported pulses have risen by 60% yet demand is still same’. Why ?

Ans: Pulses are considered as an essential good , therefore when their prices are rising, it will not affect its demand adversely. It is one of the inelastic good, where demand does not fall even with a rise in its price.  

(Q8) Which products an exporter should choose on the basis of elasticity of demand ? Explain.

Ans: An exporter should choose those products for exports which have lesser elasticity of demand abroad. Examples are : gems and jewellery, software etc. For these products, exporter can raise their price but their demand will not be affected. It can raise               profitability of the exporters

(Q9) The government in India keeps raising taxes on cigarettes leading to a rise in price of this commodity. But the fall in demand is insignificant. How do you explain this phenomenon?

Ans: This is a situation of low elasticity of demand for cigarettes due to

(i) there are no close substitutes of this commodity in the market, and

(ii) it is a habit-forming commodity.    

(Q10) ‘ When price elasticity of demand is negative, income elasticity of demand is positive ’.  Is it true ? Explain with reason.

Ans: Yes , the given statement is true because price and demand for a normal good are inversely related to each other, therefore it has negative price elasticity of demand. However, income and demand are positively related. therefore, for a normal good, income elasticity of demand is always positive.

(Q11) A Finance Minister wants to impose such a tax which should not affect the production of a good. Considering elasticity of demand, suggest him two such products with a reason. 

Ans: A Finance Minister should impose tax upon less elastic goods like ciggarettes, electricity etc.  Demand for ciggarettes or electricity will not be affected nor it will force the producer to reduce their production.

(Q12) The following news was printed in the Economic Times : “ Narrow petrol - diesel price gap and higher price of diesel cars alter buyer preference ” Explain this statement linking it to the concept of elasticity of demand.

Ans: Low price differential between petrol and diesel (along with the fact that the             diesel cars are more expensive) is expected to induce the buyers to shift from diesel cars to petrol cars. It implies a situation when elasticity of demand for diesel cars is expected to rise. A rise in price of diesel cars will prompt many buyers to shift from diesel to petrol cars.

(Q13) If power tariff  is lowered during off-peak hours, do you think the problem of             load - shedding for household consumption can be solved to some extent ? Use the concept of elasticity of demand.

Ans: Power (electricity) is put to several uses by the households. It involves the use of several appliances (like washing machines, dish-washers) can be used during off-peak hours if the households have to pay lower tariff.   Accordingly, it is expected that the peak-hour demand would reduce in response to high tariff rates. As a result, load-shedding is expected to reduce.

(Q14) During peak hours of demand for electricity, the own price elasticity of demand tends to be low.  Given this fact, would you recommend higher unit price of electricity during peak hours?

Ans: This will help to tackle the problem of scarcity only to a limited extent.  

(Q15) When the price of exportables falls in the domestic market and exports tend to rise, our export receipts fail to show a rise.  Why ?

Ans: This happens when  price elasticity of demand is less than unity . This causes percentages less increase in export and thus the total receipts will fall 

(Q16) The price elasticity of demand for life-saving drugs is inelastic. As a result, manufactures have the freedom to fix higher prices for them. How can this problem be handled ?

Ans: 

(a) The government needs to control the prices of life-saving drugs  “ The Essential Commodities Act , 1955” aims to ensure equitable distribution of essential commodities at reasonable price.

(b) The government can also provide subsidy to firms so that they may charge less price for such items.

(Q17) At times there arises a problem of shortage of water supply in a particular region.  Demand for water is perfectly elastic.  What needs to be done in such a situation?  Explain.

Ans: 
(1) There is need to avoid the wastage of water as far as possible.

(2)  Water may be imported from the surplus areas

(Q18) If regardless of changes in its price, the quantity demanded of a good remains unchanged, then what would be the shape of the demand curve for the good ?

Ans: Vertical

(Q19) Up to 50% slash.

(a) 3 airlines slash fares by up to 505 to fill up seats.

(b) Specie Jet offers 5 lakhs seats at fares starting from Rs. 1,499.

(c) More airlines such as Air India may follow suit.  Move unlikely to dent airlines as fuel prices and operating costs are low.

Do airlines gain from such a strategy?

Ans: Yes, but only if demand for air travel is more than unit elastic

(Q20) State with reasons, whether the following items will have elastic or inelastic demand: 

(a) Matchbox:
(b) Coke ;
(c) Medicines:
(d) NCERT Textbook

(e) Electricity
(f) Cigarettes
(g) Butter for a poor person.

(h) life saving drugs
(i) Shirts,
(j) Refrigerators    

(k) Cigar by a chain smoker,
(l) Demand for diesel and petrol 

(m) demand for personal computers
(n) Precious stones and costly jewellery.

(o)  milk 
(p) seasonal vegetables
(q) coal    

(u) four square cigarettes,
(v) needles
(w) colour T.V.

(x) Particular brand of lipstick 

Ans:  

(a) Inelastic demand as consumer has to spend a very small proportion of his income.

(b) Elastic demand as it has number of substitutes.

(c) Inelastic demand as their consumption cannot be postponed.

(d) Inelastic demand as it is a necessity item.

(e) Elastic demand as it can be put to several uses.

(f) Inelastic demand as its consumers are habituated.

(g) Elastic demand as it is a luxury item for the poor person.

(h) Inelastic 

(i)  Inelastic , Clothing is an essential item. .

(j)  Elastic ,  Refrigerator is not an essential item of consumption for the common man

(k)  Inelastic , It is a habitual necessity for the chain smoker.

(l)    Inelastic , Only few substitutes of diesel/petrol are available & also Complementary goods

(m) Elastic ,  it is not an essential item of consumption

(n)  Inelastic.  Costly diamonds and jewellary is demanded by the very rich persons

(o)  Elastic 
(p) inelastic     
(q) elastic    
(u) elastic
v) inelasti
(w) elastic
(x) elastic.

(Q21) Elasticity of demand is different points of demand curve, unless demand curve is     rectangular hyperbola. Comment.

(Q22) Draw the demand schedule for a commodity whose Elasticity of demand is unitary. Do war goods have elastic demand ?

(Q23) If the market demand for a commodity is perfectly inelastic, e.g. in case of necessities like salt, then what can be the possible causes for perfectly inelastic demand ?

(Q24) State in which case demand is likely to be more elastic in each of the following pairs of goods, and why:

(a)    Chocolate or Cadbury’s chocolate
(b)    Orange juice or water

(c)    Cigarettes or sweets 
(d)    A notepad or a computer

(Q25) Are a slope of demand curve and elasticity of demand curve same thing ?

(Q26)  " The elasticity of (or responsiveness of) demand in a market is great or small according as the amount demanded increase much or little for a given fall in price and diminishes much or little for a given rise in price." discuss the statement given by marshall ?
(Q27) Prices of necessities continue to rise. Should you postpone your demand ?

(Q28) Raymonds’ management is discussing a proposal to offer a discount sale on its products to boost its revenue. Will such a discount sale definitely work to boost up the revenue ?

Ans:  No.

(Q29) Rank the following price elasticity coefficients in descending order by their effect on quantity demanded in response to a change in price. 

ep = 0, ep = - 0.1, ep = - 0.11, ep = - 0.2 , ep = 1, ep = -2.09 

(Q30) “ If a product price increases , a family’sspending on the product has to increase “ . 

Defend or Refute
or
Show effect of an increase in price on total expenditure depending on the value of price elasticity  

(Q31) Demand for the product is elastic. Its price falls. What will be its effect on total expenditure on the product ? Give numerical example ?

(Q32) Suppose the price elasticity of demand is - . 2. How will the expenditure on the good be affected if there is a 10 % increase in the price of good ?
Ans: (increase)

(Q33) Explain the total expenditure method of measuring price elasticity of demand of a   commodity ? When demand is said to be inelastic ?

(Q34) A rise in the price of a good results in an increase in expenditure on it. Is its demand elastic or inelastic ?

(Q35) What happens to total expenditure on a commodity when its price falls  and its demand is price elastic ? 

(Q36) A consumer buys 8 units of a good at a price of Rs.7 per unit. When price rises to Rs. 8 per unit he buys 7 units. Calculate price elasticity of demand through the expenditure approach. Comment upon the shape of demand curve based on this information.

Ans: ed = 1

(b) Comment upon the degree of elasticity of demand for Good X, using the total outlay method, if the price of X falls from 18 per unit to 13 per unit and its quantity demanded rises from 50 units to 100 units. 

(b) Ed > 1.

Q37) When the price of a good falls from Rs.10 to Rs. 8 per unit, its demand rises from 20 units to 24 units. What can you say about price elasticity of demand of the good through the  ‘expenditure approach’ ? (3M)

Ans: As with fall in price, total expenditure also falls, price elasticity of demand is less than 1. Demand is inelastic. (No mark if the percentage method is used) 

(Q38) When the price of a good rises from Rs.10 to Rs.12 per unit, its demand falls from 25 units to 20 units  What can you say about price elasticity of demand of the good through the ‘ expenditure  approach’ ?   (3 M)

Ans: ed > 1

(Q39) A consumer buys 27 units of a good at a price of Rs.10 per unit. When the price falls to Rs.9 per unit, the demand rises to 30 units. What can you say about price elasticity of demand of the good through the ‘expenditure approach’ ?  (3 marks)

and ed = 1

(Q40) Demand for a good is termed inelastic through the expenditure approach when if (Choose the correct alternative)  (1M)

(a) Price of the good falls, expenditure on it rises

(b) Price of the good falls, expenditure on it falls

(c) Price of the good falls, expenditure on it remains unchanged

(d) Price of the good rises, expenditure on it falls