Q.A shopkeeper's total sales revenue on a good was ₹1,000 when its price was ₹10 per unit. After a price cut to ₹8 per unit, total revenue fell to ₹880. Using the total outlay method, state and justify the type of price elasticity of demand, and verify using the percentage method.
Concept understanding — Price Elasticity of Demand
Knowing that demand falls when price rises isn't enough — the real question is HOW MUCH it falls, and that's exactly what price elasticity of demand measures.
The percentage-change method gives you a precise number. Take the percentage change in quantity demanded, divide by the percentage change in price, and (ignoring the sign, since demand curves slope down) that ratio IS the elasticity, Ed. A value above 1 means demand is relatively elastic — quantity reacts more than proportionally to the price change. Exactly 1 is unit elastic. Below 1 (but still positive) is relatively inelastic — quantity barely budges. The two extremes: perfectly elastic (Ed = infinity, any tiny price rise kills demand entirely) and perfectly inelastic (Ed = 0, quantity demanded doesn't move at all, no matter what the price does).
When you don't have exact numbers, the total-expenditure method is a clever shortcut. Total expenditure is just price times quantity, and watching how it moves when price changes tells you the elasticity category without ever computing Ed directly. Price falls and total expenditure RISES? That only happens if quantity rose by MORE than price fell proportionally — demand is elastic. Price falls and expenditure stays exactly the same? Unit elastic — the two effects cancel perfectly. Price falls and expenditure FALLS too? Quantity barely responded — demand is inelastic.
Why is one good's demand more elastic than another's? Five recurring factors decide it. More available substitutes make it easier to switch away when price rises, so elasticity goes up. A necessity (with few real substitutes) tends to be inelastic; a luxury tends to be elastic. A good eating up a big share of your income makes you more price-sensitive — more elastic. Give people more TIME to adjust and find alternatives, and demand gets more elastic in the long run than the short run. And a good with many different uses tends to be more elastic, because a price drop opens it up to uses that weren't worth it before.
How this is examined in CUET. Computing Ed from clean before/after price and quantity numbers; classifying a given Ed value into the five standard categories; applying the total-expenditure shortcut without ever computing Ed directly; and recalling — and applying to a described good — the five factors that push elasticity up or down.
The total outlay method judges elasticity from how total spending on a good moves when its price changes.
Price fell (₹10 → ₹8) and total outlay ALSO fell (₹1,000 → ₹880) — the signature of inelastic demand.
Demand is relatively inelastic (Ep<1); the percentage method confirms Ep=0.5.
Given: At P1=₹10, total outlay TO1=₹1,000, so quantity Q1=1,000/10=100 units.
At P2=₹8, total outlay TO2=₹880, so quantity Q2=880/8=110 units.
Applying the total outlay rule: price FELL (₹10 → ₹8) and total outlay ALSO FELL (₹1,000 → ₹880). Under the total outlay method, when price falls and outlay falls in the same direction, demand is relatively inelastic.
Independent cross-check using the percentage method:
% ΔQ=100110−100×100=10%
% ΔP=108−10×100=−20%
Ep=−2010=0.5
Since Ep=0.5<1, the percentage method independently confirms the total-outlay classification of relatively inelastic demand — both methods agree.
Demand is relatively inelastic; total outlay falls as price falls, and the percentage method gives Ep=0.5, confirming the classification.
Total outlay method (qualitative): price down, outlay down ⇒ inelastic — consistent with the exact Ep=0.5 computed above.
Treating a fall in outlay alongside a price fall as automatically meaning "low demand" rather than correctly reading it as the SIGNATURE of inelastic demand. Also common: dividing by the wrong base price/quantity when back-calculating units sold from total outlay.
- CBSE 2026Set ANNUAL1 markMCQQ.Demand curve is parallel to ‘Y’-axis - Perfectly inelastic demand Relatively inelastic demand Perfectly elastic demand Unitary elastic demand(a) c, d(b) b, d(c) a, b, c(d) only a
›Reveal solutionSolution
A vertical demand curve parallel to the Y-axis = perfectly inelastic demand, so the answer is only a.
A demand curve parallel to the Y-axis is a vertical straight line: whatever the price, the quantity demanded stays exactly the same. This means the coefficient of price elasticity of demand is zero (Ed = 0) because there is no change in quantity in response to a change in price. That degree of elasticity is called perfectly inelastic demand (statement a).
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(b) Relatively inelastic demand has a steep, downward-sloping curve, not a vertical one.
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(c) Perfectly elastic demand is a horizontal line parallel to the X-axis.
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(d) Unitary elastic demand is a rectangular hyperbola.
✓Final answerCorrect option: only a — Perfectly inelastic demand.
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- CBSE 2025Set ANNUAL1 markQ.Give an economic term: Elasticity resulting from a proportionate change in quantity demanded due to a proportionate change in price.
›Reveal solutionSolution
The economic term is Unitary (unit) elasticity of demand, where Ed = 1.
Price elasticity of demand is measured as Ed = percentage change in quantity demanded / percentage change in price. When a given percentage change in price brings about an exactly equal percentage change in quantity demanded, this ratio equals one. This case is called unitary elastic demand. Its notable feature is that the total expenditure (total outlay) on the good stays unchanged when its price changes.
✓Final answerUnitary elastic demand (Ed = 1) — the proportionate change in quantity demanded is equal to the proportionate change in price.
- CBSE 2024Set ANNUAL1 markQ.Perfectly elastic demand : Ed = ∞ : : _______ : Ed = 0
›Reveal solutionSolution
Completing the correlation: Perfectly inelastic demand : Ed = 0 :: Perfectly elastic demand : Ed = infinity. Answer: Perfectly inelastic demand.
Why: The degrees of price elasticity of demand are:
- Perfectly elastic demand (Ed = infinity) — an infinitely large change in quantity for a negligible change in price; the demand curve is a horizontal line.
- Perfectly inelastic demand (Ed = 0) — quantity demanded stays exactly the same whatever the price; the demand curve is a vertical line.
- Between these lie relatively elastic (Ed greater than 1), unitary (Ed = 1) and relatively inelastic (Ed less than 1) demand.
Since Ed = 0 corresponds to no response of quantity to price, the term is perfectly inelastic demand.
✓Final answerPerfectly inelastic demand.
- CBSE 2023Set ANNUAL1 markQ.Give economic terms: Degree of responsiveness of a change of quantity demanded of a good to a change in its price.
›Reveal solutionSolution
The term described is Price Elasticity of Demand — the responsiveness of the quantity demanded of a good to a change in its price.
Price elasticity of demand shows how much the quantity demanded changes when the price of the good changes. It is measured as the ratio of the percentage change in quantity demanded to the percentage change in price, i.e. Ed = %ΔQ / %ΔP. If demand responds sharply to a price change, demand is elastic; if it barely responds, demand is inelastic. Since the definition speaks of responsiveness of quantity demanded to a change in the good's own price, the term is price elasticity of demand.
✓Final answerEconomic term: Price Elasticity of Demand.
- CBSE 2022Set ANNUAL1 markQ.Complete the correlation. Perfectly elastic demand : Ed = ∞ :: ______ : Ed = 1.
›Reveal solutionSolution
The missing term is Unitary elastic demand, the degree of elasticity where the coefficient Ed = 1.
Price elasticity of demand measures how responsive quantity demanded is to a price change, and its coefficient defines five degrees:
Degree Coefficient Perfectly elastic Ed = infinity Perfectly inelastic Ed = 0 Relatively elastic Ed greater than 1 Relatively inelastic Ed less than 1 Unitary elastic Ed = 1 Unitary elastic demand occurs when the percentage change in quantity demanded is exactly equal to the percentage change in price (Ed = %ΔQ / %ΔP = 1). Its demand curve is a rectangular hyperbola. Since the pair links perfectly elastic demand to Ed = infinity, the term matching Ed = 1 is unitary elastic demand.
✓Final answerPerfectly elastic demand : Ed = infinity :: Unitary elastic demand : Ed = 1
- CBSE 2022Set ANNUAL1 markMCQQ.When the percentage change in quantity demanded is Less than the percentage change in price the demand curve is ______(a) Flatter(b) Steeper(c) Rectangular hyperbola(d) Horizontal
›Reveal solutionSolution
The correct option is Steeper. When the percentage change in quantity demanded is less than the percentage change in price, demand is relatively inelastic (Ed less than 1) and its curve is comparatively steep.
The slope of the demand curve reflects the degree of elasticity:
Situation Ed Curve %ΔQ greater than %ΔP Ed greater than 1 (relatively elastic) Flatter %ΔQ less than %ΔP Ed less than 1 (relatively inelastic) Steeper %ΔQ = %ΔP Ed = 1 (unitary) Rectangular hyperbola A small quantity response to a large price change means buyers barely cut back when price rises, so the curve is steep. Hence the answer is steeper.
✓Final answerDemand curve is Steeper when %ΔQ is less than %ΔP
- CBSE 2022Set ANNUAL1 markMCQQ.Study the following figure and answer the question given below it. Identify the price elasticity of demand from the following diagram:(a) Perfectly inelastic demand(b) Perfectly elastic demand(c) Relatively inelastic demand(d) Relatively elastic demand/unitary elastic
›Reveal solutionSolution
Read the slope: vertical = perfectly inelastic, horizontal = perfectly elastic, steep = relatively inelastic, flat/rectangular-hyperbola = relatively/unitary elastic. For a vertical curve the answer is perfectly inelastic demand.
Each diagram in this section shows one degree of price elasticity of demand, identified from the shape of the demand curve:
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Perfectly inelastic demand (Ed = 0): the demand curve is a vertical straight line — quantity stays the same whatever the price.
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Perfectly elastic demand (Ed = infinity): the demand curve is a horizontal straight line — at one price buyers take any quantity.
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Relatively inelastic demand (Ed less than 1): the curve is steep — a large price change causes only a small change in quantity.
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Relatively elastic / unitary elastic demand (Ed of 1 or more): the curve is flatter (unitary is a rectangular hyperbola) — quantity changes as much as or more than price.
✓Final answerA vertical demand curve represents Perfectly inelastic demand (Ed = 0), where quantity demanded does not change with price. (If the shown curve is not vertical, match its shape to the degrees above.)
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- CBSE 2022Set ANNUAL1 markMCQQ.Study the following figure and answer the question given below it. Identify the price elasticity of demand from the following diagram:(a) Perfectly inelastic demand(b) Perfectly elastic demand(c) Relatively inelastic demand(d) Relatively elastic demand/unitary elastic
›Reveal solutionSolution
A horizontal demand curve = perfectly elastic demand (Ed = infinity). Match the diagram's slope to identify the degree.
The four degrees identified from a demand-curve diagram are:
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Perfectly elastic demand (Ed = infinity): a horizontal straight line — the whole quantity is bought at one price, and demand vanishes if price rises.
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Perfectly inelastic demand (Ed = 0): a vertical straight line — quantity is fixed regardless of price.
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Relatively inelastic demand (Ed less than 1): a steep curve — quantity changes little when price changes.
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Relatively elastic / unitary demand (Ed of 1 or more): a flatter curve — quantity changes as much as or more than price.
✓Final answerA horizontal demand curve represents Perfectly elastic demand (Ed = infinity), where consumers buy any amount at one price. (If the shown curve is not horizontal, match its shape to the degrees above.)
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- CBSE 2022Set ANNUAL1 markMCQQ.Study the following figure and answer the question given below it. Identify the price elasticity of demand from the following diagram:(a) Perfectly inelastic demand(b) Perfectly elastic demand(c) Relatively inelastic demand(d) Relatively elastic demand/unitary elastic
›Reveal solutionSolution
A steep downward-sloping demand curve = relatively inelastic demand (Ed less than 1). Identify the degree from the curve's slope.
Degrees of price elasticity read from the diagram:
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Relatively inelastic demand (Ed less than 1): a steep curve — quantity demanded changes proportionately less than price (necessities behave this way).
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Relatively elastic / unitary demand (Ed of 1 or more): a flatter curve — quantity changes proportionately as much as or more than price.
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Perfectly inelastic demand (Ed = 0): a vertical line.
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Perfectly elastic demand (Ed = infinity): a horizontal line.
✓Final answerA steep downward-sloping demand curve represents Relatively inelastic demand (Ed less than 1), where quantity demanded changes less than the change in price. (If the shown curve is flat/horizontal/vertical, match its shape to the degrees above.)
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- CBSE 2022Set ANNUAL1 markMCQQ.Study the following figure and answer the question given below it. Identify the price elasticity of demand from the following diagram:(a) Perfectly inelastic demand(b) Perfectly elastic demand(c) Relatively inelastic demand(d) Relatively elastic demand/unitary elastic
›Reveal solutionSolution
A flatter curve = relatively elastic demand (Ed greater than 1); a rectangular hyperbola = unitary elastic (Ed = 1). Match the diagram's shape to read the degree.
Degrees of price elasticity identified from the diagram:
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Relatively elastic demand (Ed greater than 1): a flatter curve — a small price change causes a larger change in quantity demanded (luxuries behave this way).
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Unitary elastic demand (Ed = 1): a rectangular hyperbola — quantity demanded changes exactly in proportion to the price change.
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Perfectly inelastic demand (Ed = 0): a vertical line; Perfectly elastic demand (Ed = infinity): a horizontal line; Relatively inelastic demand (Ed less than 1): a steep curve.
✓Final answerA flatter demand curve represents Relatively elastic demand (Ed greater than 1), and a rectangular hyperbola represents unitary elastic demand (Ed = 1). (If the shown curve is vertical/horizontal/steep, match its shape to the degrees above.)
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