Question

1.Briefly explain price elasticity of demand and how it is measured.

(1)Explain with diagrams and relevant examples,three catagories of price elasticity demand.

(11)Explain any three deterninats of price elasticity demand.

Answer 1

The law demand theory states that there is the indirect relation between price and quantity demanded but the law does not tell that change in the price how much quantity will change.

In another hand, elastic demand theory measures the responsiveness of the demand after the change in the price.

Thre are three graphs the graph A shows elastic demand is high changes in the price results larger changes in the quantity demanded

B graph shows changes int eh price results no changes in quantity demanded elastic demand is less elastic.

C graph shows demand for elastic demand is unitary in other words changes in her price results same percentage quantity demanded.

The following the factors are responsible for elastic demand

• The consumer taste and preference certain goods demand is inelastic due to consumers choice
• The goods have more substitute elastic demand is high
• The nature of the goods example luxurious goods have more elastic demand other hand necessary goods have inelastic demand.