Observe the following figures and answer the questions given below them :[Figure ‘A’: price on the Y-axis and quantity demanded on the X-axis; the demand curve DD is a vertical straight line parallel to the Y-axis.][Figure ‘B’: price on the Y-axis an…

Question

Q.5 (ii) Observe the following figures and answer the questions given below them : [Figure ‘A’: price on the Y-axis and quantity demanded on the X-axis; the demand curve DD is a vertical straight line parallel to the Y-axis.] [Figure ‘B’: price on the Y-axis and quantity demanded on the X-axis; DD is a smooth downward sloping curve (rectangular hyperbola). Price falls from P to P₁ and quantity demanded rises from Q to Q₁.] (1) Identify and explain the degree of elasticity of demand in figure ‘A’. (2) (2) Identify and explain the degree of elasticity of demand in figure ‘B’. (2)

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Answer: (1) Perfectly inelastic demand (E_d = 0) ; (2) Unitary elastic demand (E_d = 1) . (1) Figure A – Perfectly inelastic demand: Whatever the change in price, quantity demanded remains the same, so E_d = 0 . The demand curve is a vertical straight line parallel to the Y-axis. It is a theoretical case; demand for essential goods such as salt or life-saving drugs comes close to it. (2) Figure B – Unitary elastic demand: The percentage change in quantity demanded is equal to the percentage change in price, so E_d = 1 . Total expenditure remains the same at all prices (OP × OQ = OP₁ × OQ₁). The demand curve is a rectangular hyperbola.

Observe the following figures and answer the questions given below them :[Figure ‘A’: price on the Y-axis and quantity demanded on the X-axis; the demand curve DD is a vertical straight line parallel to the Y-axis.][Figure ‘B’: price on the Y-axis an…

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