VERY SHORT ANSWER TYPE QUESTIONS
1. Define elasticity of demand.
Ans: Elasticity of demand measures how much the quantity demanded of a good changes in response to a change in its price.
2. Define price elasticity of demand.
Ans: Price elasticity of demand quantifies the responsiveness of the quantity demanded to changes in the price of a good
3. What is meant by income elasticity of demand?
Ans: Income elasticity of demand shows how much the quantity demanded changes in response to a change in consumer income. It measures the sensitivity of demand for a good to changes in income.
4. Define cross elasticity of demand.
Ans: Cross elasticity of demand indicates how much the quantity demanded of one good changes when the price of another good changes. It measures the relationship between the demands for two different goods.
5. Point out any four determinants of price elasticity of demand.
Ans: Determinants of price elasticity of demand include:
# Substitutability of the good
# Proportion of income spent on the good
# Necessity vs. luxury nature of the good
# Time elapsed since price change
6. Define elasticity of supply.
Ans: Elasticity of supply measures how much the quantity supplied of a good changes in response to changes in its price. It quantifies the sensitivity of quantity supplied to price changes.
SHORT ANSWER TYPE QUESTIONS
1. Describe the various types or degrees of price elasticity of demand.
Ans: Types of Price Elasticity of Demand:
Elastic Demand: When a small change in price leads to a significant change in quantity demanded.
Inelastic Demand: When a change in price results in a small change in quantity demanded.
Unitary Elastic Demand: When a change in price leads to an equal proportionate change in quantity demanded.
2. Explain the types of income elasticity.
Ans: Types of Income Elasticity:
Normal Goods (Positive Income Elasticity): Goods for which demand increases as consumer income rises.
Inferior Goods (Negative Income Elasticity): Goods for which demand decreases as consumer income rises.
Luxury Goods (High Positive Income Elasticity): Goods for which demand increases significantly with income growth.
3. Explain the types of cross elasticity.
Ans: Types of Cross Elasticity:
Positive Cross Elasticity: When the demand for one good increases due to a price increase of another related good (substitutes).
Negative Cross Elasticity: When the demand for one good decreases due to a price increase of another related good (complements).
4. What are the determinants of price elasticity of demand? Explain.
Ans: Determinants of Price Elasticity of Demand:
Substitutability: The more substitutes available, the more elastic the demand.
Proportion of Income Spent: Goods that take a smaller portion of income tend to have less elastic demand.
Necessity vs. Luxury: Necessities often have inelastic demand, while luxury goods have more elastic demand.
Necessity vs. Luxury: Necessities often have inelastic demand, while luxury goods have more elastic demand.
5. Describe the various types of elasticity of supply.
Ans: Types of Elasticity of Supply:
Elastic Supply: When a change in price leads to a relatively larger change in quantity supplied
Inelastic Supply: When a change in price results in a relatively smaller change in quantity supplied.
Unitary Elastic Supply: When a change in price causes a proportional change in quantity supplied.
LONG ANSWER TYPE QUESTIONS
1. What is price elasticity of demand? Explain its types or degrees.
Ans: Price Elasticity of Demand quantifies the responsiveness of quantity demanded to changes in the price of a product. It’s calculated by dividing the percentage change in quantity demanded by the percentage change in price. The types or degrees of price elasticity of demand determine how responsive consumers are to price changes:
Elastic Demand: When a small change in price leads to a significant change in quantity demanded. For instance, luxury goods or goods with many substitutes tend to have elastic demand.
Inelastic Demand: When a change in price results in a small change in quantity demanded. Necessities or goods with fewer substitutes often have inelastic demand.
Unitary Elastic Demand: When a change in price leads to an equal percentage change in quantity demanded. This occurs in very few cases.
2. What is income elasticity of demand? Explain its types.
Ans: Income Elasticity of Demand measures the responsiveness of quantity demanded concerning changes in consumer income. Different types include:
Normal Goods (Positive Income Elasticity): Goods for which demand increases as consumer income rises. These are typical goods like clothing or food.
Inferior Goods (Negative Income Elasticity): Goods for which demand decreases as consumer income rises. Examples might include low-cost items like generic brands when consumers’ incomes increase.
Luxury Goods (High Positive Income Elasticity): Goods for which demand increases significantly with income growth. These are high-end products like luxury cars or designer items.
3. Define cross elasticity of demand. Discuss the positive and the negative cross elasticity of demand.
Ans: Cross Elasticity of Demand shows the relationship between the demands for two different goods concerning price changes:
Positive Cross Elasticity: When the demand for one good increases due to a price increase of another related good (substitutes). For instance, if the price of tea rises, the demand for coffee might increase.
Negative Cross Elasticity: When the demand for one good decreases due to a price increase of another related good (complements). For example, if the price of smartphones increases, the demand for smartphone cases might decrease.
4. What is price elasticity of demand? Explain its determinants.
Ans: Price Elasticity of Demand depends on various determinants:
Substitutability: More substitutes result in more elastic demand.
Proportion of Income Spent: Goods that take less income tend to have less elastic demand.
Necessity vs. Luxury: Necessities often have inelastic demand, while luxury goods have more elastic demand.
Time Horizon: Longer periods usually lead to more elastic demand as consumers adjust more.
5. Define price elasticity of supply. Explain its different types or degrees.
Ans: Price Elasticity of Supply measures how much the quantity supplied of a good changes in response to changes in its price:
Elastic Supply: When a change in price leads to a relatively larger change in quantity supplied.
Inelastic Supply: When a change in price results in a relatively smaller change in quantity supplied.
Unitary Elastic Supply: When a change in price causes a proportional change in quantity supplied.
