Q.If the price of a commodity rises by 10% and its quantity demanded falls from 40 units to 30 units, calculate coefficient of price elasticity of demand. Comment on the nature of price elasticity of demand.
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Price Elasticity of Demand: From the Market to Your Pocket
Think about the last time the price of something you buy regularly went up. Maybe it was petrol, or onions, or your favourite snack. Did you stop buying it altogether? Did you buy a little less? Or did you grumble and keep buying the same amount?
That difference in your behaviour is exactly what Price Elasticity of Demand (PED) measures. It answers one simple question: When the price changes, how much does the quantity demanded change?
The Intuition First
Some goods are necessities — things you cannot easily do without. If the price of life-saving insulin rises, a diabetic patient will still buy almost the same amount. Their demand is insensitive to price.
Other goods are luxuries or have close substitutes. If the price of a particular brand of packaged juice doubles, you can easily switch to another brand, or drink water instead. Your demand is sensitive to price.
PED is just a number that captures this sensitivity. It tells sellers and policymakers: "If you change the price by 1%, by what percentage will the quantity demanded change?"
The Precise Definition (NCERT Standard)
The NCERT textbook defines Price Elasticity of Demand as:
Ed=Percentage change in pricePercentage change in quantity demanded
Or, more formally:
Ed=ΔP/PΔQ/Q=ΔPΔQ×QP
Where:
- Ed = Price elasticity of demand (a pure number, no units)
- Q = Original quantity demanded
- ΔQ = Change in quantity demanded (Qnew−Qold)
- P = Original price
- ΔP = Change in price (Pnew−Pold)
The Law of Demand says price and quantity move in opposite directions. So ΔQ and ΔP have opposite signs, making Ed always negative. Economists usually drop the negative sign and talk about the absolute value (e.g., "elasticity is 2" means Ed=−2).
The Five Types of Elasticity
The value of Ed tells you the nature of the good:
| Value of ∣Ed∣ | Term | What it means | Real-world example |
|---|---|---|---|---|
| ∣Ed∣=0 | Perfectly inelastic | Quantity demanded does not change at all when price changes | Life-saving drugs, salt (in very small quantities) |
| 0<∣Ed∣<1 | Inelastic demand | Quantity changes by a smaller percentage than price | Petrol, electricity, basic food items |
| ∣Ed∣=1 | Unitary elastic | Quantity changes by exactly the same percentage as price | A theoretical midpoint; rare in real life |
| 1<∣Ed∣<∞ | Elastic demand | Quantity changes by a larger percentage than price | Luxury cars, branded clothes, restaurant meals |
| ∣Ed∣=∞ | Perfectly elastic | Consumers will buy any amount at a given price, but nothing at a higher price | A farmer selling wheat in a perfectly competitive market |
Why Does This Matter? (The "So What?")
For a business: Elasticity determines what happens to total revenue when you change price.
Total Revenue (TR) = Price × Quantity. If demand is elastic (∣Ed∣>1), a price decrease raises total revenue (because quantity rises by a larger percentage). If demand is inelastic (∣Ed∣<1), a price increase raises total revenue (because quantity falls by a smaller percentage). …
Part (b)Concept understanding — Supply And Demand Shift
The Everyday Intuition: Why Did My Chai Cost More Last Month?
Think about the chai-wala near your school. One month, a sudden cold wave hits your city. Everyone wants hot chai. The chai-wala can only make so many cups per hour. What happens? He might raise the price from ₹10 to ₹12. You grumble, but you still buy it because you're cold. That's demand shifting — more people wanting chai at every price.
Now imagine a different scenario: a truckers' strike makes milk and sugar expensive to transport. The chai-wala now has to pay more for his ingredients. He can't afford to sell chai at ₹10 anymore. He raises the price to ₹12 just to cover his costs. That's supply shifting — the cost of making chai has changed.
These two stories feel similar — price goes up in both — but the reason is completely different. And that difference is the entire point of this concept.
The Precise Meaning: What "Shift" Actually Means
In economics, demand and supply are not single numbers. They are schedules — a whole list showing how much buyers want (or sellers offer) at every possible price. We draw them as curves on a graph: price on the vertical axis, quantity on the horizontal.
A shift means the entire curve moves — left or right. This is different from a movement along the curve, which happens when only the price changes.
Shift of the curve = a non-price factor changes (income, tastes, input costs, technology).
Movement along the curve = only the price changes.
Demand Shift
The demand curve shows: "At price ₹P, buyers want quantity Q." If something other than price changes how much people want, the whole curve shifts.
Rightward shift (increase in demand): At every price, buyers want more than before.
Leftward shift (decrease in demand): At every price, buyers want less.
What causes a demand shift? NCERT Class 12 (Introductory Microeconomics, Chapter 5) lists these factors:
- Change in income: For normal goods, higher income → more demand at every price. For inferior goods (like cheap noodles), higher income → less demand.
- Change in tastes/preferences: A health report praising green tea shifts its demand curve right.
- Change in price of related goods:
- Substitutes (tea and coffee): If coffee becomes expensive, tea demand shifts right.
- Complements (petrol and cars): If petrol becomes expensive, car demand shifts left.
- Expectations about future prices: If you think chai will cost ₹15 next week, you buy more today — demand shifts right now.
- Number of buyers: More population → more demand at every price.
Supply Shift
The supply curve shows: "At price ₹P, sellers offer quantity Q." If something other than price changes their willingness or ability to sell, the whole curve shifts.
Rightward shift (increase in supply): At every price, sellers offer more.
Leftward shift (decrease in supply): At every price, sellers offer less.
NCERT lists these causes:
- Change in input prices: Cheaper raw materials → supply shifts right. Costlier inputs → supply shifts left.
- Change in technology: Better machines → produce more at same cost → supply shifts right.
- Change in price of other goods (for multi-product firms): If a farmer can grow wheat or rice, and wheat price rises, they shift land to wheat — rice supply shifts left.
- Expectations: If sellers expect higher prices next month, they may hold back stock today — supply shifts left.
- Number of sellers: More firms enter the market → supply shifts right.
- Taxes and subsidies: A tax on production shifts supply left (costs rise). A subsidy shifts supply right (costs fall).
Why It Matters: The New Equilibrium
The market price is determined where demand and supply curves intersect. That intersection is called equilibrium. When a curve shifts, the equilibrium changes.
Here is what happens in words (and you should draw this):
Case 1: Demand shifts right (increase in demand)
- At the old price, there is now excess demand — buyers want more than sellers offer.
- Sellers raise price. As price rises, some buyers drop out, and sellers produce more.
- New equilibrium: Higher price, higher quantity. …
Part (a)
Ed=%ΔP%ΔQ
Step 1 — % change in quantity demanded:
%ΔQ=4030−40×100=40−10×100=−25%
Step 2 — % change in price = +10% (given).
Step 3 — coefficient:
Ed=+10%−25%=−2.5 …
Part (a): A 10% price rise cutting quantity from 40 to 30 units gives Ed=−2.5; demand is elastic.
Part (b): Higher air pollution increases the demand for air purifiers (rightward shift), raising both equilibrium price and equilibrium quantity.
Part (a)
Price elasticity of demand measures how responsive quantity demanded is to a price change:
Ed=%ΔP%ΔQ
Step 1 — percentage change in quantity demanded. Initial Q1=40, final Q2=30:
%ΔQ=Q1Q2−Q1×100=4030−40×100=−25%
Step 2 — percentage change in price = +10% (given).
Step 3 — coefficient of elasticity:
Ed=+10%−25%=−2.5
Nature. The negative sign reflects the inverse price–quantity relationship (law of demand). The magnitude ∣Ed∣=2.5>1, so demand is elastic: a 1% rise in price causes a 2.5% fall in quantity demanded — a more-than-proportionate response. …
Showing the 12 most recent of 29 on this concept.
- CBSE 2026Set ANNUAL1 markMCQQ.Demand curve generally slopes -(a) upward from left to right(b) downward from left to right(c) Parallel to X-Axis(d) Parallel to Y-Axis(a) upward from left to right(b) downward from left to right(c) Parallel to X-Axis(d) Parallel to Y-Axis
›Reveal solutionSolution
The demand curve slopes downward from left to right (negative slope).
With price on the Y-axis and quantity demanded on the X-axis, the standard demand curve slopes downward, reflecting the Law of Demand: other things (income, tastes, prices of related goods) remaining constant, consumers buy more of a good when it is cheaper and less when it is costlier — due to the substitution effect, income effect, and (in the cardinal-utility view) the law of diminishing marginal utility. 'Upward sloping' would represent the rare exceptions (Gi …
- CBSE 2025Set MARCH1 markMCQQ.The figure shows the leftward shift of demand curve. Identify the cause of the shift from the following :(a) Price of the product increases(b) Price of the product decreases(c) Income of the consumer decreases(d) Income of the consumer increases
›Reveal solutionSolution
A leftward shift of demand for a normal good is caused by a fall in consumer income — option (c).
…
- CBSE 2025Set ANNUAL1 markMCQQ.Which of the following is the reason for a decrease in supply? (A) Increase in production cost (B) Increase in the prices of substitutes (C) Fall in number of firms in the industry (D) All of these
›Reveal solutionSolution
All the listed factors reduce supply, so the answer is (D) All of these.
Supply falls (the curve shifts left) for several reasons. A rise in the cost of production makes each unit less profitable, so firms supply less (A). A rise in the prices of substitutes in production tempts producers to switch resources to those other goods, cutting the supply of this good (B). A fall in the number of firms in the industry directly lowers tot …
- CBSE 2025Set ANNUAL1 markMCQQ.In which type of goods, price fall does not make any increase in demand? (A) Necessary goods (B) Comfort goods (C) Luxurious goods (D) None of these
›Reveal solutionSolution
Demand for necessary goods is inelastic, so a price fall hardly raises their demand; the answer is (A).
The response of quantity demanded to a price change depends on the nature of the good. Necessaries (such as salt, basic food, essential medicine) are bought in a more or less fixed quantity regardless of price, so their demand is highly inelastic — a fall in price does not noticeably increase the quantity demanded, because consumers were already buying what they require. Comfort and luxury goods …
- CBSE 2025Set ANNUAL1 markMCQQ.Price elasticity of demand for Giffen goods is (A) Negative (B) Positive (C) Zero (D) None of these
›Reveal solutionSolution
A Giffen good has an upward-sloping demand curve, so its price elasticity of demand is positive; the answer is (B).
A Giffen good is a special inferior good where the negative income effect of a price change outweighs the substitution effect, so the Law of Demand breaks down: when its price rises, quantity demanded also rises, and when price falls, demand falls. Because price and quantity demanded move in the same direction, the deman …
- CBSE 2025Set ANNUAL1 markMCQQ.The factor affecting elasticity of demand is (A) Nature of goods (B) Price level (C) Income level (D) All of these
›Reveal solutionSolution
Nature of the good, price level and income level all affect elasticity of demand, so the answer is (D).
Many factors determine how elastic demand for a good is: (i) the nature of the good — necessities are inelastic, luxuries elastic;
(ii) the price level or price range — demand often behaves differently at high and low prices; …
- CBSE 2025Set ANNUAL1 markMCQQ.If the demand for a good changes by 60% due to 40% change in price, the elasticity of demand will be (A) 0.5 (B) -1.5 (C) 1 (D) 0
›Reveal solutionSolution
Ed = %change in quantity / %change in price = 60/40 = 1.5 (negative by convention), so the answer is (B).
Price elasticity of demand (Ed) measures the responsiveness of quantity demanded to a price change:
Ed = (percentage change in quantity demanded) / (percentage change in price)
Here the quantity changes by 60% and price by 40%, so
Ed = 60% / 40% = 1.5
…
- CBSE 2025Set ANNUAL1 markMCQQ.If demand and supply curves both shift to the right, the equilibrium price will - (A) Increase (B) Decrease (C) Remain unchanged (D) Any of the above
›Reveal solutionSolution
A simultaneous rightward shift of demand and supply raises quantity but leaves the price change indeterminate, so (D) is correct.
In the RBSE/CBSE Class-12 market-equilibrium chapter, when BOTH the demand curve and the supply curve shift to the right:
- Quantity — unambiguously increases (both shifts push quantity up).
- Price — the two shifts pull in opposite directions. A rightward demand shift tends to raise price, while a rightward supply shift tends to lower it.
The net effect on price therefore depends on the relative size of the two shifts:
- If demand shifts more than supply → price rises.
- If supply shifts more than demand → price falls. …
- CBSE 2025Set ANNUAL1 markMCQQ.The elasticity of demand of luxurious commodities is -(a) Elastic(b) Highly elastic(c) Inelastic(d) Perfectly inelastic
›Reveal solutionSolution
The demand for luxury goods is highly elastic — option (b).
Elasticity of demand depends on the nature of the commodity. Luxury goods (cars, jewellery, expensive gadgets) are not essential, so consumers respond strongly to price changes — they buy much more when the price falls and much less (or postpone the purchase) when it rises. Hence t …
- CBSE 2025Set ANNUAL1 markMCQQ.When percentage change in quantity demanded of a commodity is more than percentage change in its price than price elasticity of demand is ______ .(a) Unitary elastic demand(b) Relatively inelastic demand(c) Relatively elastic demand(d) Perfectly elastic demand
›Reveal solutionSolution
When %ΔQd > %ΔP, the elasticity coefficient Ed > 1, which is called relatively elastic demand.
Price elasticity of demand (Ed) is calculated as:
Ed = (Percentage change in quantity demanded) ÷ (Percentage change in price)
Based on the numerical value of Ed, demand is classified into five categories:
- Ed = 0 — Perfectly inelastic demand (quantity does not change at all with price).
- Ed < 1 — Relatively inelastic demand (%ΔQd is SMALLER than %ΔP).
- Ed = 1 — Unitary elastic demand (%ΔQd EQUALS %ΔP).
- Ed > 1 — Relatively elastic demand (%ΔQd is LARGER than %ΔP). …
- CBSE 2025Set ANNUAL1 markMCQQ.If an increase in quantity demanded is equal to an increase in quantity supplied than equilibrium price and equilibrium quantity will show ______ .(a) Price increases quantity remains constant(b) Quantity decreases and price remains constant(c) Price decreases and quantity remains constant(d) Quantity increases and price remains constant
›Reveal solutionSolution
Equal rightward shifts of both the demand and supply curves raise the equilibrium quantity while leaving the equilibrium price unchanged.
Market equilibrium occurs where the demand curve intersects the supply curve. When a rise in demand (demand curve shifts right by Δ) is matched EXACTLY by an equal rise in supply (supply curve shifts right by the same Δ) at the original price, both curves move outward by the same horizontal distance:
- At the OLD equilibrium price, there is no longer excess demand or excess supply, because both quantity demanded and quantity supplied have risen by the same amount — so the price does not need to adjust. …
- CBSE 2024Set ANNUAL1 markMCQQ.Who propounded the percentage or proportionate method of measuring elasticity of demand? (A) Marshall (B) Flux (C) Hicks (D) None of them
›Reveal solutionSolution
The percentage / proportionate method of measuring elasticity of demand was propounded by Marshall, so the answer is (A).
In the BSEB Inter Class-12 Economics syllabus, the percentage (proportionate) method measures price elasticity of demand as the percentage change in quantity demanded divided by the percentage change in price. This method was developed by the economist Alfred Marshall …
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