Q.(a) Define 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). …
Price elasticity of demand = percentage change in quantity demanded ÷ percentage change in price. Using the given data the value works out to −0.8 (magnitude 0.8), so demand is price-inelastic. (a) Definition (2 marks): Price elasticity of demand (Ed) is a measure of the degree of responsiveness of the quantity demanded of a good to a change in its own price, other things remaining constant. It is defined as: Ed = (Percentage change in quantity demanded) ÷ (Percentage change in price) Because price and quantity move in opposite directions along a demand curve, the value is normally negative; we usually read its absolute (magnitude) value. This is standard Kerala Plus Two (DHSE) economics consumer-behaviour theory, aligned with the NCERT/CBSE curriculum. (b) Calculation (3 marks): Given: Original price P = ₹4, original quantity Q = 25 units. New price P′ = ₹5, new quantity Q′ = 20 units. - Change in quantity ΔQ = 20 − 25 = −5 units - Change in price ΔP = 5 − 4 = ₹1 - Percentage change in quantity = (ΔQ / Q) × 100 = (−5 / 25) × 100 = −20% - Percentage cha …
Price elasticity of demand = percentage change in quantity demanded ÷ percentage change in price. Using the given data the value works out to −0.8 (magnitude 0.8), so demand is price-inelastic.
- Definition (2 marks): Price elasticity of demand (Ed) is a measure of the degree of responsiveness of the quantity demanded of a good to a change in its own price, other things remaining constant. It is defined as: Ed = (Percentage change in quantity demanded) ÷ (Percentage change in price) Because price and quantity move in opposite directions along a demand curve, the value is normally negative; we usually read its absolute (magnitude) value. This is standard Kerala Plus Two (DHSE) economics consumer-behaviour theory, aligned with the NCERT/CBSE curriculum.
- Calculation (3 marks): Given: Original price P = ₹4, original quantity Q = 25 units. New price P′ = ₹5, new quantity Q′ = 20 units.
- Change in quantity ΔQ = 20 − 25 = −5 units
- Change in price ΔP = 5 − 4 = ₹1 …
Showing the 12 most recent of 19 on this concept.
- 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.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 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 …
- CBSE 2024Set ANNUAL1 markMCQQ.Relatively elastic demand is shown by (A) delta Q/Q > delta P/P (B) delta P/P > delta Q/Q (C) delta P/P = delta Q/Q (D) None of these
›Reveal solutionSolution
Relatively elastic demand means delta Q/Q > delta P/P (Ed > 1), so the answer is (A).
In the BSEB Inter Class-12 Economics syllabus, demand is relatively (more) elastic when a given percentage change in price causes a larger percentage change in quantity demanded — that is, the proportionate change in quantity (delta Q/Q) exceeds the proportionate change in price (delta P/P), so price elasticity of demand is greater than one. …
- CBSE 2024Set ANNUAL1 markMCQQ.When elasticity of demand of a commodity is perfectly inelastic the demand curve becomes (A) Parallel to x-axis (B) Parallel to y-axis (C) Sloping downward (D) None of these
›Reveal solutionSolution
Perfectly inelastic demand (Ed = 0) gives a vertical demand curve parallel to the y-axis, so the answer is (B).
In the BSEB Inter Class-12 Economics syllabus, perfectly inelastic demand means the quantity demanded stays fixed no matter how much price changes (price elasticity = 0). Since quantity is constant at every price, plotting price on the y-axis and quantity on the x-axis gives a vertical straight line parallel to the y-axis. A curve …
- CBSE 2024Set ANNUAL1 markMCQQ.For Giffen goods price elasticity of demand is (A) Negative (B) Positive (C) Zero (D) None of these
›Reveal solutionSolution
Giffen goods have positive price elasticity of demand, so the answer is (B).
In the BSEB Inter Class-12 Economics syllabus, a Giffen good is a special inferior good for which the strong negative income effect outweighs the substitution effect, so quantity demanded rises when price rises (and falls when price falls). Since price and quantity demanded move in the same direction, the demand curve …
- CBSE 2024Set ANNUAL1 markMCQQ.Which of the following factors affects elasticity of demand? (A) Nature of goods (B) Price level (C) Income level (D) All of these
›Reveal solutionSolution
Nature of goods, price level and income level all affect elasticity of demand, so the answer is (D).
In the BSEB Inter Class-12 Economics syllabus, several factors determine the price elasticity of demand for a good:
- (A) Nature of goods — necessities tend to be inelastic, luxuries elastic.
- (B) Price level — elasticity differs at high versus low price ranges.
- (C) Income level of the consumer — affects how sensitive purchases are to price. …
- CBSE 2024Set ANNUAL1 markMCQQ.Price elasticity of demand means (A) Change in demand due to change in average price (B) Change in demand (C) Change in real income (D) Change in price
›Reveal solutionSolution
Price elasticity of demand = responsiveness of quantity demanded to a change in price, so the answer is (A).
In the BSEB Inter Class-12 Economics syllabus, price elasticity of demand measures the degree of responsiveness of quantity demanded to a change in the good's own price — the percentage change in quantity demanded divided by the percentage change in price. Among the options, only (A) links the change in demand to a change in price. "Change in demand" a …
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