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The extent to which demand responds to changes in any of its determinants such as price, income, tastes and preference, etc. is called elasticity of demand.

Market demand:

• The sum total of all individual demands of all existing consumers in the market at a given price at a particular point of time is called ‘market demand.
• The table given below shows individual demand of customers A, B and C.
• The last column of the data table is as summation of individual demands. This summated demand is called the market demand.
• The first three diagrams show individual demand of each customer whereas the fourth diagram shows their combined demand i.e. market demand.

The demand of a good by an individual consumer at a given price at a particular point of time is called individual demand.

Individual demand:

The demand of a good by an individual consumer at a given price at a particular point of time is called individual demand.

A demand schedule is a table that shows the willingness of a consumer to buy different quantities of a good at various prices.

The cross-price elasticity of demand measures the change in demand for one good in response to a change in price of another good.

Cross elasticity of demand = \(\frac{\%\, change\, in\, demand\, for\, good\, X}{\%\, change\, in\, demand\, for\, good\, Y}\)

When a percentage change in demand is proportionately more than percentage change in price then such demand is called relatively elastic demand.

Correct option is (D) Perfectly inelastic demand

• Method of proportionate change
• Total for measuring elasticity of demand. – outlay method (total expenditure method)
• Geometric method

When demand increases, due to a rise in income of the consumer or demand decreases due to a fall in income of the consumer, then such a change in demand is known as positive income elasticity of demand.

• Positive income elastic demand,
• Negative income elastic demand and
• Zero income elastic demand.

Correct option is (B) Percentage change in demand is more than percentage change in price

Correct option is (D) Perfectly elastic demand

Correct option is (D) Both (A) and (C)

Cross elasticity or Cross-Price elasticity of demand:

• When the demand of the concerned commodity changes in response to the change in price of its related good (either substitute or complementary good), then the- extent of such change in demand is called cross elasticity or cross-price elasticity of demand.
• Cross elasticity of demand =  Percentage change in demand for good X Percentage change in price for good Y
• The cross-price elasticity of demand measures the change in demand for one good in response to a change in price of another good.
• The cross-price elasticity may be a positive value or negative value, depending on whether the goods are complementary or substitutes.

(A) Negative cross-price elasticity:

• If the cross-price elasticity is a negative value, it means the products for which cross-price elasticity is measured are complementary products.
• If two products are complementary, an increase in price of one product will lead to decrease in demand of another product.

Example:

• Petrol and cars are complementary products. If the price of petrol rises by 20%, the demand for cars that have poor fuel efficiency will fall.
• Complementary products are such products which needs to be consumed jointly.

(B) Positive cross-price elasticity:

• If the cross-price elasticity is a positive value, it means the products for which cross-price elasticity is measured are substitute products.
• If two products are substitutes, increase in price of one good will increase the demand of other good.

Example:

• Pure ghee and vanaspati ghee are substitute products. If price of pure ghee increases considerably, people may consume less of pure ghee and increase their consumption of vanaspati ghee will increase.
• Substitute goods are goods that can be used in place of one another.

Correct option is (A) Infinite

Correct option is (D) Leftward shift ; Rightward shift

The main assumption during expansion-contraction of demand is that all other determinants are constant.

Assuming other factors constant when the price falls or rises there is a possibility of expansion – contraction of demand.

Elasticity of demand:

The extent to which demand responds to changes in any of its determinants such as price, income, tastes and preference, etc. is called elasticity of demand.

Types:
There are mainly three determinants of demand. They are:

1. Price of the good
2. Income of the consumer
3. Price of the related goods

Based on these three determinants, we can have three types of elasticity of demands. They are:

1. Price Elasticity of Demand (i.e. change in demand due to price)
2. Income Elasticity of Demand (i.e. change in demand due to income)
3. Cross Elasticity of Demahd (i.e. change in demand of one good with respect to change in price of another good)

Correct option is (A) Change of demand and change of income of consumer are proportionately equal

The demand for a commodity increases with increase in the consumer’s income. Similarly, when his income falls, his demand for a good falls. Thus, there is a direct relationship between income and demand.

Correct option is (D) 5

Correct option is (D) Both (A) and (B)

Degrees (types) of price elasticity of demand:

• The extent of change in demand because of a change in price can be expressed in five degrees. This is known as degrees of price elasticity of demand.
• Demands are not fix and possess elasticity.
• All commodities do not have same price elasticity. It varies from one good to another.
• The price elasticity of demand ranges from 0 (zero) to ∞ (infinity).
• Price elasticity can be 0, <1, = 1, >1 and infinity.

Based upon these five situations, their are five degrees of demand. They are:

1. Perfectly elastic demand (ε_p = ∞)
2. Perfectly inelastic demand (ε_p = 0)
3. Unitary elastic demand (ε_p – 1)
4. Relatively elastic demand (ε_p > 1)
5. Relatively inelastic demand (ε_p < 1)