Elasticity of Demand, Price Elasticity and Cross Elasticity and Income Elasticity

Elasticity is the response of one variable in-respect of other dependent variable. Commodity demands depends on price, other available commodity , income of consumer, season etc.

Price Elasticity 

Price elasticity of demand is response in-respect of changes in price of a commodity. Most of the time when the price rises , demand of commodity decline. 

Income Elasticity 

Income elasticity is the degree of response of a commodity due to change in income of consumer. Generally , it is observed that When income of consumer rises, demand of commodity also rises.

Cross Elasticity 

Sometime, One commodity also depends other commodity, in respect of price. When one commodity price rises, other commodity demand may rise.

Numerical

 Questions

A shopkeeper sells gel pen at 10 per pen. At this price he can sell 120 per month. After some time, he raises the price to 15 per pen. 60 pens are sold every month. The number of refills bought decreases from 200 to 150. The number of ink pen bought goes up from 90 to 180 per month.

 1. The price elasticity of demand when gel pen’s price increases form 10 per pen to 15 per pen is equal to ......

a. 2.5

b. 1.0

c. 1.65

d. 2.66

Solution

 

2. The cross elasticity of monthly demand for refills when price of gel pen increases from 10 to 15 is equal to ......

a. -0.71

b. 0.25

c. -0.19

d. 0.38

 Solutions

 

3. The cross elasticity of monthly demand for ink pen when the price of gel pen increases from 10 to 15 is equal to ......

a. 1.65

b. -1.05

c. -2.09

d. 2.09

Solutions 

4. Suppose income of the residents of locality increases by 50% & the quantity of gel pens demanded increases by 20%. Income elasticity of demand for gel pen ......

a. 0.4

b. 0.6

c. 1.25

d. 1.50

Solutions