MCQ Questions for Class 12 Economics Chapter 2 Theory of Consumer Behaviour with Answers
This sensitiveness of demand against a change in price is explained by the Price Elasticity of Demand. In mainstream Indian culture, coarse grains are considered the poor man’s food. When people move out of poverty, they prefer to eat rice and wheat, rather than assorted millets. People substitute superior goods for inferior ones when their incomes go up.
The reason stated for this is the redundant human nature to change habits. We generally stick to a commodity and respond very late to the price changes. However, the elasticity of demand is high in a longer time period as our habit changes over time.
Know more about Demand analysis and ace the concept of The elasticity of demand and its measurement. On a rectangular hyperbola demand curve, elasticity at all points is equal to one. This is because elasticity as per one method, is measured by taking the area below the curve.
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Chapters of the Earth Science were also very satisfactory. If a consumer is habitual to particular commodity like Cigarette , Coffee then DEMAND IS INELASTIC as consumer will need it at any cost. If CLOSE SUBSTITUTE ARE EASILY OR READILY AVAILABLE, even a very small increase will make consumer to shift to other goods and hence demand would be ELASTIC OR HIGH. This method was EVOLVED BY MARSHAL and in this Elasticity of demand is measured in terms of RELATIONSHIP BETWEEN PRICE OF THE COMMODITY AND EXPENDITURE INCURRED. GkRankers has been created specifically for students for their all round development. Here, you can find all types of study materials and latest news from educational field at one space.
In other words, different items have varying degrees of sensitivity to price changes. The Elasticity of Demand is highly dependent on the time period. The elasticity of demand for comfort goods are Price Elasticity of Demand is generally higher in the long-run and low in a short-run. This is the major benefit of inelastic goods over elastic ones.
- If the proportion spent on the product is high, the demand is elastic and vice versa.
- The demand for necessary good does not fluctuate with the price as these goods are basic for day-to-day life.
- Economists unveiled that the prices of certain goods are inelastic.
- The earnings elasticity of demand is used to measure the sensitivity of a change in the quantity demanded relative to a change in shoppers’ incomes.
- The worth elasticity of demand is calculated by dividing the percent change within the amount demanded of an excellent or service by its percent change in its price level.
If this formula gives a number greater than 1, the demand is elastic. In other words, quantity changes faster than price. The elasticity of the demand of the object and the expenditure on the object is closely related. Budget set is a collection of all bundles that a consumer purchases from their income at market prices.
The most important part of efficient production is in proper scientific production planning. No resource can be wasted, it may be material or capacity or labour. So, planning has to done with at most care as the right product has to reach the right place at the right time. “Hit and miss” strategies can no longer be experimented.
When the demand for a product is inelastic, the quality demanded responds poorly to cost adjustments. The price of a good falls in relation to its substitute. Consumers can easily switch from one good to another even if there is only a small change in price and so its demand will increase. Hence the price elasticity of demand for commodities having close substitutes is relatively high. Luxuries are the goods which are not essential, rather, they are consumed for leisure or comfort purposes. For example, air conditioners, branded garments etc.
Price Elasticity of Demand
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. Major cause being the necessity of the product or its cost. A change in price does not always lead to the same proportionate change in demand. For example, a small change in the price of washing machine may affect to a considerable extent, whereas, large change in the price of sugar may not affect its demand. So, elasticity of demand is different for different goods.
Is demand for luxury goods elastic or inelastic?
Luxury goods are said to have high income elasticity of demand. In other words, as people become wealthier, they will buy more and more of the luxury good. Luxury goods are highly sensitive to economic upturns and downturns; therefore, the state of the economy will often shape consumer spending on luxury goods.
Finally, elasticity of demand for a commodity is influenced by numerous factors. However, it’s impossible to say which element or mix of variables has the most impact. It all boils down to the specifics of each scenario. The nature of a commodity’s demand is affected by its category. A necessity, a luxury, or a comfort for one person may be a want for another. So for example, for instance there’s some drugs, for example you are a diabetic and you want insulin, if you do not get insulin, actually unhealthy issues are going to occur.
Factors Affecting Elasticity Of Demand: 9 Major Factors Explained
Comfort foods, well, defy these various classifications of goods used by economists. Economists may well come up with a new classification for them. The other exception to the rule of people consuming less of something when its price goes up is in the case of luxury goods. This normally happens at an income level altogether different from the one at which people consume Giffen goods. A luxury good can fall within the consumption range of someone only when their income goes up.
However, it has almost no impact on the demand for petrol. In such a case, we will say that the price elasticity for petrol demand is inelastic. However, if this 5% rise causes a massive drop in petrol demand, then price elasticity for petrol demand shall be elastic.
Good use of cross elasticity is to measure the change in demand for coffee to a change in tea price. Price elasticity of demand is a measure of the responsiveness of shoppers to a change in the price of a product. When shut substitutes can be found, the amount demanded is very sensitive to adjustments in the price stage and vice versa. This formulation is also referred to as the cross elasticity of demand. The kind of fine or service impacts the elasticity of demand as well.
More The elasticity of demand and its measurement Questions
This is an essential concept for marketing professionals. And the primary goal for these professionals is to ensure an inelastic demand for the marketed products. Because consumers find it tough to change their behaviors in a short time, they are less likely to act on an increase in the price of a particular commodity. In contrast, long rim demand is more elastic since it is easier to substitute to alternatives if the price of the product rises. The demand for goods like salt, needles, soap, match boxes, and other commodities is often inelastic because consumers spend a tiny fraction of their money on them.
The elasticity of demand, or demand elasticity, refers to how sensitive demand for a good is in comparison with modifications in different financial elements like price or revenue. It is often known as worth elasticity of demand as a result of value is the commonest economic issue used to measure it. One issue that can have an effect on demand elasticity of a good or service is its price stage. For example, the change within the worth stage for a luxury automotive can cause a considerable change in the amount demanded.
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Such goods are required for human survival so their demand does not fluctuate much against a change in their price. A change in price does not always result in the same proportion of change in quantity demanded of a commodity. Manufacturing companies before February 2020 is totally different than that of after May 2020 because of Covid-19 affecting the global economy. The priority of the consumers is about to change drastically.
Elasticity measures the sensitivity of one economic variable against a change in another economic variable. We often hear about demand and supply in economics and also in elasticity. Diversity of Uses – Commodities that can be put to a variety of uses have elastic demand. Whereas if a commodity has only a few uses, its demand is less elastic. If there is a need for something for comfort or survival, people do not have any issue paying higher prices for it.
Cross elasticity of demand measures the responsiveness of demand for one good to a change in the price of the other good. A period of time is always required for the calculation of demand elasticity. It might be a day, a week, a month, a year, or even several years.
What is the elasticity of demand for comfort goods?
When a good or service is a luxury or a comfort good, the demand is highly price-elastic when compared to a necessary good. Conversely, the demand for an essential good, such as food, is generally price-inelastic because consumers still buy food even if the price changes.
In case of price fall, the quantity demanded remains the same resulting in less revenue generation. While in times of price hike businesses earn significant profits. The price elasticity of demand is directly proportional to the time period. This means the elasticity for a shorter time period is always low or it can be even inelastic.
As against this, demand for luxuries is generally more elastic, as they are high price goods, e.g. demand for T.V. However demand for comforts like fan, cooler, radio etc. is generally elastic as a consumer can postpone its consumption. While among these the option is correct, but actually income elasticity of demand in case of luxuries is positive as well as greater than one. What that means is two things – One, if income rises, our consumption of luxury goods also does. Two, the consumption of luxury items rises more than the rise in income, and it falls more than the fall in income. This explains the greater than one elasticity quotient.
So this would possibly look something like that, so I’ll write that as excessive, high elasticity elasticity. And low elasticity can be that your proportion in amount doesn’t change much relying on your p.c change in price. So one may say that we’re gonna think about the determinants of the price elasticity of demand. Price Elasticity of Demand may be defined as the measure of the degree of responsiveness of demand for a commodity to change in its price.
Are necessity goods elastic or inelastic?
Goods that are considered essential have a low elasticity of demand. Electricity, gas, oil, and water are all relatively inelastic because consumers rely on these as necessities rather than luxuries.