Explore topic-wise InterviewSolutions in Current Affairs.

A commodity that can be used for different purposes (such as milk) will have an elastic demand. This is because if the price of this commodity increases, it will be used only for important purposes leading to a drastic fall in demand.

Ratio method:

Ratio method is used to estimate elasticity at any point on a straight line demand curve. Elasticity is measured as the ratio of percentage change in quantity demanded to the percentage change in price i.e.

ed = Percentage change in demand for a good/Percentage change in price of a good

Geometric Method:

Geometric method is also called point method of measuring elasticity. Under this method, elasticity is measured at different points on a demand curve. This method of measuring price elasticity was developed by Dr. Marshall. A demand curve can either be a straight line demand curve or a rectangular hyperbola curve. Accordingly, we study the geometric method of measuring elasticity for the two types of demand curves. The price elasticity on any point of the demand curve is calculated by using the following formula:

Price Elasticity of Demand = Lower segment of the demand curve below the given point/Upper segment of demand curve above the given point

line demand curve, the elasticity will be equal to one. For points above the mid-point the elasticity will be greater than one. On the contrary for points below the mid-point the elasticity will be less than one.

1. Total outlay 

2. elastic 

3. inelastic 

4. rectangular hyperbola 

5. inelastic

6. elastic 

7. income elasticity 

8. positive income elasticity 

9. negative income elasticity 

10. zero income elasticity 

11. Prof. Alfred Marshall 

12. inelastic

Option : (c) necessities

1. Cars and petrol are complementary goods. In other words, they are goods which are demanded together. For such goods there exists an inverse relation between the demand for one good and the price for other good. That is, a rise in the price of petrol will lead to a fall in the demand for cars.

2. Geometric method is also called point method of measuring elasticity. Under this method, elasticity is measured at different points on a demand curve.

3. Necessary goods are those goods which a consumer demands for sustaining his life. A consumer cannot reduce the consumption of these goods. For example, food is a necessity good. The demand for such goods does not change much in response to the changes in their prices. Even when the price rises the consumer cannot reduce their demand. Hence, such goods have an inelastic demand.

Wrong pair: BMW Car – Inelastic demand

(1) – (e), (2) – (c), (3) – (d), (4) – (a), (5)-(b).

FALSE

Perfectly inelastic demand implies that the demand for the commodity is completely unresponsive to the change in the price of the commodity. That is, a change in price has no effect on the demand. A specific quantity of the good would be demanded no matter the price. In such cases, the demand curve is vertical line parallel to Y axis.

TRUE

Luxuries are the goods which are not essential, rather, they are consumed for leisure or comfort purposes. For example, air conditioners, branded garments etc. The demand for such goods is highly responsive to the change in their price. A rise in their price reduces the demand for them and vice-versa. This is because in case, the price rises, the consumer can do away with these goods, on the other hand, when the price rises the consumer tends to demand more of such goods to increase his comfort level in living. Thus, such goods have elastic demand.

(1) – (d), (2) – (e), (3) – (a), (4) – (b), (5)-(c).

Correct option: (c) perfectly elastic

Correct option: (b) relatively inelastic

Correct option: (a) elastic

Snob appeal refers to the perception that higher priced goods are better. Also, for some people, higher priced goods are linked with their status symbol. Such products may include designer clothes, diamonds etc. Such an effect makes the demand for the good inelastic

TRUE

Unitary elasticity implies that a certain percentage increase in price is offset by equal percentage decrease in demand. If price of a good rises by two times, then the demand for the good gets halved. Similarly, a percentage decrease in price is offset by an equal percentage increase in demand for the good. Such an exact behaviour rarely occurs in practice.

(iii) Both (A) and (R) are true and (R) is the correct explanation of (A)’.

Cross elasticity of demand is the measure of the responsiveness of demand for a good to a change in the price of a related good.

Ec = Proportionate change in quantity demanded of good X/Proportionate change in price of good Y

Correct option: (b) relatively inelastic

Correct option: (d) relatively inelastic

Percentage Method: 

1. According to this method elasticity of demand is equal to the ratio of percentage change in the quantity demanded to percentage change in the price. 

2. (1) If the result in one, the Elasticity is unitary. 

(2) If the result is > 1 the demand is relatively elastic and 

(3) If the result is < 1 then demand is relatively Inelastic.

Total Outlay Method:

1. Under this method Elasticity is measured by observing the changes in outlay in response to change in price. 

2. Elasticity of demand is measured by the kind of changes in total expenditure.

• When with increase or decrease in price, the outlay remain constant the elasticity is equal to one.
• If outlay and price are inversely related then demand is relatively elastic.
• If outlay and price are directly related then demand is relatively Inelastic.

Unitary elastic demand implies that a change in the price of a commodity leads to a proportionate change in the quantity demanded of that commodity. For instance, if the demand for Good X is unitary elastic, a 50% increase in the price of Good X will lead to a 50% decline in the quantity demanded of Good X. In this case, E_d = 1.

Elastic demand for a good implies that the demand for a good is highly responsive to its price. In this case, the percentage change in demand is greater than the percentage change in price and |E_d| > 1. This implies that a little change in price will lead to a significant change in quantity demanded.

Necessary goods are those goods which a consumer demands for sustaining his life. A consumer cannot reduce the consumption of these goods. For example, food is a necessity good. The demand for such goods does not change much in response to the changes in their prices. Even when the price rises the consumer cannot reduce their demand. Hence, such goods have an inelastic demand.

1. Perfectly inelastic demand 

2. Unitary elastic demand

3. Unitary elastic (convex to origin) 

4. Complementary goods 

5. Point or Geometric method

Elasticity of demand.

Elastic demand for a good implies that the demand for a good is highly responsive to its price. In this case, the percentage change in demand is greater than the percentage change in price and |E_d| > 1. This implies that a little change in price will lead to a significant change in quantity demanded.

Perfectly elastic demand.

Price elasticity.

Income elasticity of demand for inferior goods is negative.

Explanation: 

Inferior goods are those goods the demand for which is negatively related to income. In other words, inferior goods are those goods the demand for which decreases with an increase in income. Therefore, income elasticity of demand for inferior goods is negative.

Income elasticity of demand measures the responsiveness of quantity demanded with respect to a change in the income of the consumer, while other factors including price of the commodity remain unchanged.

Em = Proportionate change in quality demanded of good X/Proportionate change in income of the consumer

No, I do not agree with this statement.

Elasticity of demand can be measured in 3 methods i.e. Percentage method, Point method or Total Outlay method.

(i) Percentage Method : This method is also known as Arithmetic Method. In this method we compare the percentage of change in demand with percentage of change in price. When we divide the percentage of change in demand by the percentage of change in price, we get Elasticity of demand.

By applying the above formula we can calculate and find the type of elasticity. If the result is one, then elasticity is unitary, if it is more than one, then it is relatively elastic and if it is less than one, it is relatively inelastic.

\(Ed = \cfrac{ Percentage\, change\, in\, Quantity\, demanded}{Percentage\, change\, in\, Price}\)

(ii) Point Method : In this method we can find elasticity of demand at a point on a given demand curve by using the following formula.

\(Ed = \cfrac{Lower\, Segment\, of\, the\, demand\,curve}{Upper\, segment\, of\, the\, demand\,curve}\)

(iii) Total Outlay Method : According to this method, elasticity of demand is measured on the basis of expenditure incurred by consumer when the price of a commodity changes. Total outlay can be calculated by multiplying the price with the quantity demanded i.e. Total Outlay = Price x Quantity Demanded

Option : (4) Both (A) and (R) are True and (R) is not the correct explanation of (A)

No, I do not agree with this statements. 

Income Elasticity of demand is not only positive but can also be negative or zero.

• Negative Income Elasticity : Inferior goods have a negative income elasticity. As income increases the demand for inferior goods fall. There is an inverse relation s between income and quantity demanded of inferior commodity. Inferior goods are substituted by superior goods.
• Zero Income Elasticity : When change in income does not have any effect on the demand for a commodity then the income elasticity is Zero – for E.g. goods like salt, pins etc.

• Nature of Commodity : By nature, commodities are classified as necessaries, comforts and luxuries. Normally demand for necessaries like food grains are relatively inelastic and for comforts and luxuries like diamond, perfumes, etc is relatively elastic.
• Availability of Substitutes : The larger the number of substitutes available for a commodity, the greater would be the elasticity. Demand for products like soap, soft drinks, detergents, tooth paste, etc. have many substitute so demand is elastic, ‘However, salt, garlic, onions have no substitute so demand is inelastic.
• Durability of the Commodity : The demand for durable goods like T.V., car, fridge, etc is relatively inelastic in the short run and elastic in the long run. Whereas the demand for perishable goods is relatively inelastic.
• Uses of Commodity : Single use commodities have less elastic demand and multi-use goods like coal, electricity, sugar, etc. have relatively elastic demand.
• Range of Price : The demand for commodities which are highly priced and will have a inelastic demand like AC, car, etc. Even very low priced goods have inelastic demand.
• Consumer’s Income : Generally if income is very high, the demand for over all commodities tends to be relatively inelastic. The demand pattern of the rich people is rarely affected even when there is significant price change.

Option : (c) infinity

Option : (a) zero

1. The poet talks about a common event in a very unusual manner. 

2. Everyone feels indebted to the mother for their birth, but the poet’s intensity of feelings makes it a very poignant experience. 

3. the poet’s perception of the mother’s sacrifice in giving birth to children is uncommon. 

4. In return for the mother’s sacrifice, the poet wants to make another woman’s life better. This is a wonderful thought.

(c) both (a) and (b)

(a) The baby inside the mother’s womb…

(b) It sucks on the life of the mother.

(c) The word ‘leech’d is used for a parasite-like creature which feeds on the other and destroys it. Usually, babies who are entirely dependent on their mothers are referred to as leeches. But here the poet feels his mother has suffered a lot with every baby she carried, and hence he has been like a leech when he was in her womb.

(d) Birth is a very significant moment in the life of a baby or an individual because it signifies the separation of the baby from the mother and the need for the baby to- fend for itself to a certain extent. It has come out of a warm, protective cave into a cold, harsh world.

(e) (c) for both

The poet says this and also something more. He means that a person should repay his mother not just by making her life better, but by making other women’s lives also better.

According to the poet, a violent deep storm in winter was a fearful thing. The force of the wind could cause the ship to wreck.

(d) darkness

The sailors were crowded in the Cabin.

a. Here we refer to the group of sailors in that particular ship.

b. In the midnight during the winter season, their ship caught by the violent storm. So the sailors would not dare to sleep because of fear.

1 – e 

2 – f 

3 – a 

4 – b 

5 – d 

6 – c

Man cannot put a fence around the planet earth.

The opposite of buy is Sell.

Here the children are Dancing.

In the poem who waits Land.

The opposite of shout is Whisper.