Critical Thinking Questions: Elasticity of Demand

Table of Contents
1. Type I
2. Type II
3. Type III
4. Type IV
5. Type V
6. Type VI
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Type I

Q1: Price elasticity of demand measures the responsiveness of quantity demanded to a change in:
(a) Consumer income only
(b) Price of related goods only
(c) Price of the commodity
(d) Total expenditure

Q2: Who introduced the concept of price elasticity of demand?
(a) Adam Smith
(b) Alfred Marshall
(c) J.M. Keynes
(d) David Ricardo

Q3: If the price elasticity of demand (ed) is equal to zero, demand is:
(a) Perfectly elastic
(b) Unit elastic
(c) Perfectly inelastic
(d) Relatively elastic

Type II

Q4: Which of the following correctly describe inelastic demand?
A. ed < 1
B. Steep demand curve
C. Large change in quantity for small price change
D. Small change in quantity for large price change
(a) A, B and D
(b) A and C
(c) B and C
(d) C and D

Q5: Identify the correct statements about unit elastic demand:
A. Percentage change in quantity equals percentage change in price
B. Demand curve is vertical
C. Total expenditure remains constant
D. ed = 1
(a) A, C and D
(b) B, C and D
(c) A and B
(d) B and D

Q6: Which of the following are methods of measuring price elasticity of demand?
A. Total Expenditure Method
B. Proportionate Method
C. Average Cost Method
D. Geometric Method
(a) A, B and D
(b) A and C
(c) B and C
(d) C and D

Type III 

Analogy Based

Q7: Perfectly Inelastic Demand : Vertical Curve : : Perfectly Elastic Demand :
(a) Steep curve
(b) Downward sloping curve
(c) Horizontal curve
(d) Rectangular hyperbola

Q8: Price Elasticity of Demand : Price Change : : Income Elasticity of Demand :
(a) Taste change
(b) Population change
(c) Income change
(d) Price change

Q9: Substitute Goods : Positive Cross Elasticity : : Complementary Goods :
(a) Zero elasticity
(b) Negative elasticity
(c) Infinite elasticity
(d) Unit elasticity

Type IV 

Assertion-Reason

Q10: (A) The demand curve is flatter when demand is more elastic.
(B) Quantity demanded responds more to price changes in elastic demand.
(a) (B) contradicts (A)
(b) (B) is the reason for (A)
(c) (A) is true but (B) is false
(d) (A) and (B) are independent

Q11: (A) Price elasticity of demand is usually negative.
(B) Quantity demanded generally increases when price rises.
(a) (B) contradicts (A)
(b) (B) is the reason for (A)
(c) (A) is true but (B) is false
(d) (A) and (B) are independent

Q12: (A) In unit elastic demand, total expenditure remains unchanged when price changes.
(B) Total Expenditure Method helps in measuring elasticity.
(a) (B) contradicts (A)
(b) (B) is the reason for (A)
(c) (A) is true but (B) is false
(d) (A) and (B) are independent

Type V

Application-Based

Q13: If a fall in price leads to an increase in total expenditure, demand is:
(a) Perfectly inelastic
(b) Less than unit elastic
(c) Unit elastic
(d) Greater than unit elastic

Q14: Demand for salt remains almost unchanged even when its price rises. This indicates:
(a) Perfectly elastic demand
(b) Elastic demand
(c) Inelastic demand
(d) Unit elastic demand

Q15: A government increases tax on a commodity with highly inelastic demand. What is the likely outcome?
(a) Huge fall in demand
(b) Increase in government revenue
(c) Sharp fall in price
(d) No tax collection

Type VI

Odd One Out / Incorrect Statement

Q16: Identify the odd one out related to degrees of price elasticity:
(a) Perfectly elastic demand
(b) Elastic demand
(c) Inelastic demand
(d) Derived demand

Q17: Which of the following does not influence elasticity of demand?
(a) Availability of substitutes
(b) Nature of the commodity
(c) Level of income
(d) Colour of the commodity

Q18: Identify the incorrect statement about perfectly elastic demand:
(a) Demand curve is horizontal
(b) Small change in price causes infinite change in demand
(c) ed = 0
(d) Buyers are highly price-sensitive

Q19: Which situation reflects unit elastic demand under the total expenditure method?
(a) Price ↓, Total expenditure ↓
(b) Price ↑, Total expenditure ↑
(c) Price ↓, Total expenditure unchanged
(d) Price ↑, Total expenditure unchanged

Q20: Which of the following statements about cross elasticity of demand is incorrect?
(a) It measures responsiveness between two goods
(b) It can be positive or negative
(c) It applies only to substitute goods
(d) It involves related goods