A.M.

JAIN SCHOOL, MEENAMBAKKAM

2021-22

CLASS: 11 CLASS WORK- 7 SUBJECT: ECONOMICS

CH-3 DEMAND AND ELASTICITY OF DEMAND (MICRO)

1. Demand It refers to various amounts of a commodity that a

consumer is ready to buy at different possible prices of the
commodity, during a period of time.

2. Quantity Demanded If refers to the specific quantity of a

commodity which is demanded during a particular period of time.

3. Market Demand It is the sum of individual demand at different

price level at a particular period of time by different people.

4. Demand Schedule The table related to price and quantity

demanded is called the demand schedule.

5. Individual Demand Schedule It is a table showing various

quantities of a commodity, which an individual buyer is ready to buy
at different possible prices of the commodity at a given point of
time.

6. Market Demand Schedule It is a table showing various quantities

of a commodity, which all the buyers in the market are ready to buy
at different possible prices of the commodity at a given point of
time.

7. Demand Curve It is a graphic presentation of demand schedule.

1
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

8. Market Demand Curve It is a graphical presentation of market

demand schedule, i.e. a horizontal summation of individual demand
curves.

9. Determinants/Factors Affecting Demand

(i) Price of the commodity (Px) (ii) Income of the consumers (y)

(iii)Price of related goods (Pr) (iv) Taste and preferences of the

consumers (T)

(v) Expectations (E) (vi) Distribution of Income (Dy)

(vii) Size of population (Ps)

Factors (i) to (v) affect individual demand, hence considered under

individual demand function, whereas factors- (i) to (vii) affects
market demand, hence considered under market demand function.

10. Demand Function It shows the relationship between demand for

a commodity and its various determinants. Written as :

2
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

Dx = f(Px, Y, Pr, T, E, Dy, Ps) [Where Dx = Demand for good x]

11.Normal Goods These are the goods for which the demand is
directly related to consumer’s income i.e. with rise in income
demand rises and vice-versa, e.g. full cream milk, pulses, grains,
etc.

12. Inferior Goods These are the goods for which the demand is
inversely related to consumer’s income, i.e. with rise in income
demand falls and vice-versa, e.g. coarse cereals, tonned milk, etc.

13. Substitute Goods These are the goods which can be substituted
for each other, such as tea and coffee or ball pen and ink pen. In
case of such goods, increase in the price of one causes increase in
the demand for other, (i.e. direct relation between price of one good
and demand of other good).

14. Complementary Goods These are those goods which complete

the demand for each other and are therefore, demanded together in
a fixed proportion, e.g. pen and ink, bread and butter, etc. A fall in
price of one causes increase in demand of the other and vice versa.

15. Law of Demand The law states that other things remaining
constant, quantity demanded of a commodity increases with a fall in
its own price and diminishes with a rise in its own price, i.e. there
exist a inverse relationship between price and quantity demanded.
Geometrically, it is represented by a downward sloping demand
curve.

16. Assumptions of Law of Demand:

A) There should be no change in the price of related goods

(substitutes and complements).

B) There should be no change in the income of the consumer.

3
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

c) There should be no change in the taste, preferences and habits of

the consumer.

d) There should be no change in the number of family members,

weather etc.,

In short, the law of demand shows change in demand occurring due

to change in the price of the commodity only.

17. Causes for Downward Sloping of Demand Curve

(i) Law of Diminishing Marginal Utility (ii) Income effect

(iii) Substitution effect (iv) Number of consumers

(v) Different uses

18. Exceptions to the Law of Demand

(i) Status symbol goods (ii) Giffen goods

(iii) Ignorance of the buyers (iv) Necessities

(v) Fashion (vi) Emergency

(vii) Miscellaneous

19. Movement Along a Demand Curve It occurs when changes in

quantity demanded are related to changes in own price of the
commodity keeping all other factors constant. When quantity
demanded contracts in response to increase in price, it is
called extension in demand.

20. Shift in Demand Curve It occurs when demand for a commodity

is related to factors other than own price of the commodity. When
more is demanded at the same price, there is rightward shift in

4
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

demand curve (called increase in demand), when less is demanded

at the same price, there is leftward shift in demand curve (called
decrease in demand).

21. Income Effect It refers to change in quantity demanded of a

commodity when real income of the consumer changes owing to
change in own price of the commodity.

22. Substitution Effect It refers to change in quantity demanded of

commodity X when relative price of the commodity (Px/Py) changes
owing to change in Px or Py.

Where Px is Price of goods X and Py is price of good y.

23. Price Effect It refers to change in quantity demanded of a

commodity owing to change in its own price, other things remaining
constant. It includes both income effect and substitution effect.

24. Cross Price Effect It refers to effect of a change in price of

commodity X on demand for commodity Y, when X and Y are related
goods, i.e. either substitutes or complementary.

5
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

25. Differentiate between Normal Goods and Inferior Goods.

26. Differentiate between substitute goods and complementary

goods.

6
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

27. Differentiate between increase in demand and expansion in

demand (increase in quantity demanded).

7
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

28. Differentiate between decrease in demand and contraction in

demand (decrease in quantity demanded).

ELASTICITY OF DEMAND
1. Price Elasticity of Demand It is the ratio between percentage
change in quantity demanded and percentage change in own price
of the commodity. It is represented by a symbol (Ed ). In other
words, Price Elasticity of Demand is the responsiveness of quantity
demanded to change in price.

8
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

2. Methods of Measurement of Price Elasticity of Demand

3. What are the factors that affect price elasticity of demand?

(i) Nature of the Commodity: The demand for essential goods like
medicines and food materials is inelastic.

The demand for luxury goods is mostly elastic.

(ii) Proportion of income spent: The goods on which we spend

smaller proportion of our income are inelastic. The consumer does
not bother about the change in their prices. Ex: Salt, Match Box,
Pencil.

(iii)Several Uses: The commodities which have several uses like

electricity, coal etc. have elastic demand. The fall in their prices
will encourage consumer to uses them for new purposes.

(iv) Habits and Addiction: Demand for cosmetics is inelastic

because the consumer is addicted to them.

(v) Income Level: Rich people do not bother much about price rise.
They do not reduce consumption even if price rises.

9
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

(vI) Availability of close substitutes: The goods that have close

substitutes have elastic demand. The goods that do not have
substitutes have inelastic demand.

NUMERICALS

1. Consider the demand for a good. At price Rs 4, the demand for

the good is 25 units. Suppose price of the good increases to Rs 5,
and as a result, the demand for the good falls to 20 units. Calculate
the price elasticity?

10
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

2.

3.

4. There are 3 households A, B, C in a market. From the following

table, calculate demand for household B at various levels of price.

11
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

Price A B C Total
demand

14 12 18 22 52

12 16 24 32 72

10 24 34 44 102

8 34 48 60 142

6 48 60 84 192

5. The following table shows the expenditure which Amit is willing

to spend on commodity X at various levels of price. Prepare demand
schedule of Amit.

Price(₹) 5 6 7 8 9

Expenditure(₹) 100 96 84 80 72

Ans: Expenditure should be divided by price, then demand schedule

will be derived.

Therefore, Amit’s demand schedule is as follows

100÷5=20; 96÷6=16; 84÷7=12; 80÷8=10; 72÷9=8

12
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

6. The demand function of a commodity of z is given by Qx=12-2Px.

Prepare demand schedule if its price various from ₹6 to ₹1

Ans

Price(₹) 6 5 4 3 2 1

Demand 1 2 4 6 8 10

Qx=12-2Px

Qx=12-2(6) = 0

Qx=12-2(5) = 2

Qx=12-2(4) = 4

Qx=12-2(3) = 6

Qx=12-2(2) = 8

Qx=12-2(1) =10

7. There are only three consumers (X,Y,Z) in a market and the

demand functions are given as Qx=30-2P,Qy=40-3P,Qz=50-4P and
the price is fixed as ₹10

Ans: To determine the market demand function from the individual

given demand is

QMD=Qx+Qy+Qz

Qmd=Qx+Qy+Qz

=(30-2(10))+(40-3x10)+(50-4x10)

=10+10+10

13
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

QMD=30
units

8. When price is ₹10 per unit, demand for a commodity is 100 unit as
the price falls to ₹8 per unit, demand expands to 150 units.
Calculate elasticity of Demand with % method and proportionate.

Ans: Percentage Method

% Change in quantity dd = ∆Q/Q×100

%Change in price ∆p/p ×100

ΔQ=Q1-Q
ΔQ=150-100 = 50
ΔP=P1-P
ΔP=8-10=-2

ΔQ×100 =50×100=50
Q 100

ΔP×100 = -2 ×100= -20

P 10

Elasticity = 50 = -2.5
-20
ed > 1
ed is more elastic
Proportionate Method
ΔQ × P = 50 × 10 = -5 = -2.5
ΔP Q -2 100 2

ed > 1
ed is more elastic.

14
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

9. The market demand for a good at ₹8 per unit is 100 units due to
increase in price the market demand falls to 75 units. Find out the
new price if the price elasticity of demand is -1

Ans: Given ed = -1
P=8, Q=100, Q1=75
P1=?

We know that,
ed = ΔQ × P
ΔP Q

ΔQ = Q1 - Q =75-100= -25

ed = ΔQ × P
ΔP Q
-1 = 25 × 8
ΔP 100

2 = -1
ΔP
ΔP= -2

ΔP= P1-P
-2= P1-8
P1=10

The new price is ₹10

15
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

10. The initial demand for a commodity is 80 units. The demands falls
by 4 units (ie.76 units) due to raise in price by ₹10 of price elasticity of
demand is 1.5. Calculate the price before change in demand.
Ans: Given ed = 1-5, Q=80, Q1=76, ΔP=10
P=?
ed = ΔQ × P
ΔP Q

ΔQ =Q1-Q= 76-80 = -4

 1.5 = - 4 × P
10 80

1.5 = -P
200
300 = -P
P= ₹ 300

Since price increases by ₹10

P1=10+P
P1=₹310

11. When the price of the commodity falls by ₹2 per units its
quantity demanded increases by 10units. Its price elasticity is -1.
Calculate its quantity demanded at the price before the change was
₹10 per unit.
Ans: Given ΔP= -2, ΔQ=10, ed= -1, P= ₹10
ed = ΔQ × P
ΔP Q

16
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

-1 = 10 × 10
-2 Q
- 1 = 50
Q

Q = 50

12. Price elasticity of demand for a product is 1. A household buys 25

units of this product at price of ₹5 per unit. If the price of the product
raises by ₹1 how much quantity of the product will the house hold buy?

Given ed = 1
Q=25, P = 5, ΔP=1, Q1=? P1=6

ed = ΔQ × P => 1 = ΔQ × 5
ΔP Q 1 25
ΔQ = 5
ΔQ = Q1 – Q

5 =Q1 – 25
Q1 = 25 - 5 = 20
Q1= 20

13. A consumer buys 80 units of a good at a price of ₹ 6 per unit

suppose the price elasticity of demand is -2, at what price will be buy
64 unit

Ans: Given Q = 80 P=6 ed = -2

Q1 = 64 P1=?

ΔQ = -16

17
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

ed = ΔQ × P
ΔP Q

-2 = --16 × 6
ΔP 80

ΔP = 6 × 1 =3
5 2 5

ΔP = 6.6

Since, the quantity demanded is decreased the price should increased

P1 =6.6 per unit

14. When the price of a commodity falls by 80% the quantity demanded
of it increases by 100% find out its price elasticity find out its price
elasticity of demand.

Ans: Formula

= % Change in Quantity demanded

% Change in price
= 100 = -5 = -1.2
-80 4

ed > 1
There is more elasticity.

15. When price of the commodity gets doubled its quantity demanded
is reduced to half. Calculate the co-efficient of price elasticity of
demand.
Ans: Formula

= % Change in Quantity demanded

% Change in price
= 50 = 0.5 < 1
100

18
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

ed < 1
This is less elastic

16. A 5% fall in price of X leads to 10% rise in demand for X. and 20%
rise in price of Y leads to 6% fall in the demand for Y. Calculate the
price elasticities of demand X and . Out of X and Y which commodity is
more elastic?

Ans: Formula

= % Change in Quantity demanded

% Change in price
For X commodity

= 10 = -2
-5
ed > 1
More elastic

For Y Commodity

= -6 = -3 = -0.3
20 10
ed < 1
Less elastic
Out of X and Y, X is more elastic than y

17. A consumer buys 20 units of a good at ₹10 per unit. When its price
falls by 10% its demand rises to 22 units. Find out the price elasticity
of demand.

Ans: Q =20, P=10, P1=9 Q1=22

ΔQ=2 ΔP=-1
Formula for price elasticity

19
 A.M. JAIN SCHOOL, MEENAMBAKKAM

2021-22

ΔQ × P = 2 × 10
ΔP Q -1 20

ed= -1
ed = 1
Unitary elasticity of demand.

18. The Quantity demand of a Commodity at a price of ₹8 per unit is

600 unit. It its price falls by 25% of the quantity demanded rises by 120
units calculate the price elasticity of demand. Is its demand elastic?
Give reasons for your answer.
Ans: Q =600, P=8, P1= 8 × -25 = 8-2
100 =6
Q1 = 600+ 120 =720

ΔQ = 120, ΔP = 6 – 8 = -2

Formula ΔQ × P = 120 × 8
ΔP Q -2 600

= -4 = -0.8
5

ed < 1
Less elastic
It is less elastic because ed < 1

20