When a small change in price leads to infinite change in quantity demanded it is called MCQ?

Latest Demand analysis MCQ Objective Questions

Demand analysis MCQ Question 1:

Which of the following is a complement product to peanut butter?

1. Sugar
2. Jelly
3. Mustard
4. Soda

Answer (Detailed Solution Below)

Option 3 : Mustard

Win over the concepts of Demand analysis and get a step ahead with the preparations for Business Economics with Testbook.

The correct answer is Mustard.

• There will be a negative cross elasticity of demand for complementary items.
• Demand will decrease for both complementary items if the price of one good rises.
• The cross elasticity of demand will be stronger the more closely related the commodities are.

Examples of complementary Goods - 

• DVD player, along with DVD discs for playback.
• Tennis racquets and balls
• iPhone and iPhone-compatible apps
• Car and fuel.

In the above question, Mustard is a complement product to peanut butter.

Demand analysis MCQ Question 2:

Which of the following statements is incorrect?

1. An indifference curve must be downward-sloping to the right.
2. Convexity of a curve implies that the slope of the curve diminishes as one moves from left to right.
3. The income elasticity for inferior goods to a consumer is positive
4. The total effect of a change in the price of a good on its quantity demanded is called the price effect.

Answer (Detailed Solution Below)

Option 3 : The income elasticity for inferior goods to a consumer is positive

The correct answer is The income elasticity for inferior goods to a consumer is positive.

• The fact that an indifference curve have a negative slope.
• The indifference curve slopes downward to mean that when the amount of one good in the combination increases, the amount of the other good decreases.
• If the degree of satisfaction is to stay the same on an indifference curve, this must be the case.
• Thus, an indifference curve is downward-sloping to the right.

Statement 2 - Convexity of a curve implies that the slope of the curve diminishes as one moves from left to right.

• A customer is always prepared to give up fewer units of one thing for every extra unit of another because of the law of declining marginal utility. 
• Convexity of a curve that the slope of the curve diminishes from left to right.
• Thus, this statement is correct.

Statement 3 - The income elasticity for inferior goods to a consumer is positive.

• In inferior goods, there is an inverse relation between income of consumer and demand for inferior goods. Income elasticity is negative.
• Thus, this statement is incorrect.

Statement 4 -The total effect of a change in the price of a good on its quantity demanded is called the price effect.

• Price effect is the shift in demand for a particular commodity or service that occurs when its price is altered.
• It may also be used to describe how a certain event affects the value of a financial instrument.
• This statement is correct.

Demand analysis MCQ Question 3:

The law which states — “supply creates its own demand”, is called as : 

1. J.B. Say’s law
2. Marshall’s law
3. Adam Smith’s law
4. Robbins’ law

Answer (Detailed Solution Below)

Option 1 : J.B. Say’s law

"Supply creates its own demand" is the formulation of Say's law.

1. In classical economics, Say's law, or the law of markets, is the claim that the production of a product creates demand for another product by providing something of value which can be exchanged for that other product. So, production is the source of demand.
2. The reasoning behind Say’s law is that each time output is produced and sold, the revenues represent an equivalent amount of income generated.
3. This income allows the owners to purchase the amount of output that was produced.
4. While widget workers may not want to spend their entire paycheck on widgets, they will want to buy something, if not what they produced, then something some other workers produced.
5. In the aggregate, supply creates its own demand, or more generally, aggregate supply drives the economy while aggregate demand responds passively.

Demand analysis MCQ Question 4:

In which market structure, the demand is perfectly elastic?

1. Duopoly
2. Perfect competition
3. Monopoly
4. Oligopoly

Answer (Detailed Solution Below)

Option 2 : Perfect competition

The correct answer is Perfect competition.

Perfect competition -

•  A market is said to be Perfect competitive, when there are a large number of sellers and selling homogeneous product.
• There is freedom of entry and exit.
• Sellers have perfect knowledge about the market conditions.
• They are price taker.
• Price Elasticity of Demand of a firm is Infinite which means demand curve for Perfect competition is a Perfectly Elastic.

Duopoly - A duopoly is a type of oligopoly that is defined by 2 significant firms manufacturing the same or comparable goods and services in a market or industry. 

Monopoly - 

• Monopoly explained there is only one seller in the market when there is a pure monopoly.
• The monopolist sets the price.

Oligopoly:

• In economics, an oligopoly is a market structure made up of several large corporations that control a specific industry through trade restrictions such collusion and market sharing.

Demand analysis MCQ Question 5:

Demand for furniture is a

1. Consumer's demand
2. Durable demand
3. Producer's demand
4. Both (A) and (B)

Answer (Detailed Solution Below)

Option 4 : Both (A) and (B)

The correct answer is Both (A) and (B).

Consumer's demand -The willingness and ability of customers to buy a certain amount of products and services within a specific time frame or at a specific point in time is known as consumer demand.

• Furniture is Durable Demand because Furniture can be used for long time and repeatedly  that's why Furniture is durable demand.
• Furniture is consumer's demand because furniture is made according to tastes & preferences of consumer, price range, particular size etc. 
• Hence, Furniture is both consumer demand and durable demand.  

Top Demand analysis MCQ Objective Questions

The following are the two statements regarding elasticity of demand and its measurement 

Statement I : On every point on the straight line demand curve, the point elasticities are all equal 

Statement II : On every point on the rectangular hyperbola shaped demand curve, the point elasticities are not equal 

Select the correct option for those below. 

1. Both the statements are correct

2. Both the statements are not correct

3. Statement I is correct while Statement II is incorrect

4. Statement I is incorrect while Statement II is correct 

1. 1
2. 2
3. 3
4. 4

Answer (Detailed Solution Below)

Option 2 : 2

Statement I: On every point on the straight-line demand curve, the point elasticities are all equal 

Statement II: On every point on the rectangular hyperbola shaped demand curve, the point elasticities are not equal 

Both the above statements are incorrect.

The explanation for Statement I:

ELASTICITY AND DEMAND SLOPE: The slope of a straight-line demand curve, one with a constant slope, has constantly changing elasticity. It includes all five elasticity alternatives--perfectly elastic, relatively elastic, unit elastic, relatively inelastic, and perfectly inelastic. No two points on a straight-line demand curve have the same elasticity.

The explanation for Statement II:

Rectangular hyperbola is a curve under which all rectangular areas are equal. When the elasticity of demand is equal to unity (ed = 1) at all points of the demand curve, then the demand curve is a rectangular hyperbola.

The rise of income in developing countries would lead the demand curve to shift:

1. right
2. down
3. up
4. left

Answer (Detailed Solution Below)

Option 1 : right

The correct answer is right

• In the case of a normal good, demand increases as the income grow.
• That is an increase in income shifts the demand curve to the right.

• The reason for this is that with a higher salary, people can afford to buy more of any given good.
• And since people have unlimited wants, more is generally considered better.
• By contrast, in the case of an inferior good, demand decreases as income grows.
• That means an increase in income shifts the demand curve to the left.
• This holds for goods that are usually replaced as income grows.

Since the question does not clarify the goods, you may consider them normal goods. 

Which among the following factor does not lead to a shift in the demand curve?

1. Income
2. Advertisement
3. Price of related products
4. Price of the product

Answer (Detailed Solution Below)

Option 4 : Price of the product

The correct answer is the Price of the product.

• Demand is an economic principle referring to a consumer's desire to purchase goods and services and willingness to pay a price for a specific good or service.
• A demand curve is a graphic representation of the relationship between product price and the quantity of the product demanded.
• The price of the product does not lead to a shift in the demand curve.
• Income is not the only factor that causes a shift in demand.
• The other things that change demand include tastes and preferences, the composition or size of the population, the prices of related goods, and even expectations.
• A shift in the demand curve is when a determinant of demand other than price changes.
• It occurs when demand for goods and services changes even though the price didn't.

• A shift in the demand curve is an unusual circumstance when the opposite occurs.
• The price remains the same but at least one of the other five determinants change.
• Those determinants are: 
  • ​Income of the buyer.
  • Consumer trends and tastes.
  • Expectations of future price, supply, needs, etc.
  • The price of related goods.
  • The number of potential buyers.

• Factors That Cause a Demand Curve to Shift: 
  • ​When the demand curve shifts, it changes the amount purchased at every price point.
  • For example, when incomes rise, people can buy more of everything they want.
  • In the short-term, the price will remain the same and the quantity sold will increase.

Tea and coffee are _______ goods.

1. Substitute
2. Normal
3. Complimentary
4. Inferior

Answer (Detailed Solution Below)

Option 1 : Substitute

Tea and coffee are substitute goods.

• Substitute goods or substitutes are at least two products that could be used for the same purpose by the same consumers.
• ​Substitute goods are identical, similar, or comparable to another product, in the eyes of the consumer.
• Substitute goods can either fully or partly satisfy the same needs of the customers. Therefore, they can replace one another, so the consumer believes.
• If the price of one of the products rises or falls, then demand for the substitute goods or substitute goods (if there is just one other) is likely to increase or decline.
• Tea is a substitute good for Coffee, and vice-versa. When the price of Tea goes up, demand for Coffee will subsequently rise (if Coffee does not raise its price).

Find the marginal revenue of a firm that sells a product at a price of Rs. 10 and the price elasticity of demand for the product is (-) 2.

1. Rs. 5
2. Rs. 10
3. Rs. 30
4. Rs. 15

Answer (Detailed Solution Below)

Option 1 : Rs. 5

Formula:

Elasticity = Average Revenue / (Average Revenue - Marginal Revenue)

              2 = 10 / (10 - MR)

 20 - 2MR = 10

            10 = 2MR

Therefore, MR = Rs. 5

A Production function expressed as

\(Q=A[α K^{-β}+(1-α) L^{-β}]^{\frac{-1}{β}}\) or \(Q=A[α L^{-β} + (1-α) K^{-β}]^{\frac{-1}{β}}\) 

When A > 0, 0 < α < 1 and β > -1

Where L = Labour, K = Capital and A, α and β are three parameters is called

1. Constant elasticity substitution function

2. Variable elasticity substitution function

3. Leontief - type function

4. Cobb - Douglas function

1. 1
2. 2
3. 3
4. 4

Answer (Detailed Solution Below)

Option 1 : 1

Constant Elasticity Substitution Function: The CES production function is a neoclassical production function that displays constant elasticity of substitution. In other words, the production technology has a constant percentage change in factor (e.g. labor and capital) proportions due to a percentage change in the marginal rate of technical substitution. The two factors (capital, labor) CES production function introduced by Solow, and later made popular by Arrow, Chenery, Minhas, and Solow are: 

\(Q=A[α K^{-β}+(1-α) L^{-β}]^{\frac{-1}{β}}\) or  \(Q=A[α L^{-β} + (1-α) K^{-β}]^{\frac{-1}{β}}\) 

When A > 0, 0 < α < 1 and β > -1

Where L = Labour, K = Capital, and A, α, and β are three parameters.

As its name suggests, the CES production function exhibits constant elasticity of substitution between capital and labor. Leontief, linear, and Cobb–Douglas functions are special cases of the CES production function.

That is,

If β approaches 1, we have a linear or perfect substitute function;

If β approaches zero in the limit, we get the Cobb–Douglas production function;

If β approaches negative infinity, we get the Leontief or perfect complements production function.

The cross-price elasticity of demand for complementary commodities is

1. Positive
2. Zero
3. Greater than one
4. Negative

Answer (Detailed Solution Below)

Option 4 : Negative

The correct answer is Negative

• Cross elasticity of demand evaluates the relationship between two products when the price in one of them changes.
• It shows the relative change in demand for one product as the price of the other rises or falls.

Complementary Goods: Complementary goods are those goods which are used together to satisfy a human want. For Eg: Bread and butter

•  The cross elasticity of demand for complementary goods is always negative.
• This implies that the demand for product Y declines as the price of product X rises.
• When consumers observe a product's price increase, they actually buy less of the other product.

Which factor is mainly responsible for increase in demand of natural resources?

1. Environmental pollution
2. Use of biodegradable resources
3. Increased human population
4. Scientific advancement

Answer (Detailed Solution Below)

Option 3 : Increased human population

The correct answer is Increased human population.

• As the human population is increasing at an astounding rate, we have reached a number of 7.4 billion today.
• Naturally, this means that we are utilizing more and more natural resources.
• If we go at this rate, we will soon reach a day when nature will not be able to provide us with resources such as plants and trees, animals, mineral ores, fossil fuels such as coal, petroleum, and natural gas. Thus, these resources are exhaustible.
• These resources are called exhaustible or non-renewable resources.
• Natural resources include oil, coal, natural gas, metals, stone, and sand. Air, sunlight, soil, and water are other natural resources.

Exception to the law of demand is:

1. Diminishing marginal utility
2. Giffen paradox
3. Different uses of products
4. Price of substitute goods

Answer (Detailed Solution Below)

Option 2 : Giffen paradox

The correct answer is Giffen paradox.

It also implies that as the price of a certain good rises, demand for that same good falls and vice versa.

Giffen Goods - Sir Robert Giffen introduced Giffen Goods concept. These goods are inferior in quality as compared to luxury products. In any case, Giffen products are that as the price raises, so will the demand for them also increases. And this feature is makes it an exception to the law of demand.

Other exceptions to the law of demand are as follows - 

Necessary Goods and Services - People will continue to buy necessities even if the price increases. The prices of these products do not affect their demand.

Change in Income - The demand for a product will rise as a household's income rises since they may buy more things regardless of the price increase. In a similar vein, if their income has decreased, people might put off purchasing goods even if its price decreases.

The expectation of Price Change - There are instances when a product's price rises and the state of the market allows for possible price hikes. In such circumstances, customers might purchase more of these goods before the price rises further.

Veblen Goods - Diamonds, a priceless stone, are one example of these products. In this instance, when the commodity's price increases, consumers feel more prestigious purchasing such products and their demand increases. This is a law of demand exception.

In above question, Giffen paradox is an exception to the law of demand.

When consumers seeks to be different and exclusive by demanding less of a commodity as more people consumes it. This phenomenon is known as

1. Bandwagen effect
2. Snob effect
3. Substitution effect
4. Price effect

Answer (Detailed Solution Below)

Option 2 : Snob effect

​​When consumers seek to be different and exclusive by demanding less of a commodity as more people consume it. This phenomenon is known as the Snob effect.

Snob effect 

• It is a phenomenon described in microeconomics as a situation where the demand for a certain good by individuals of a higher income level is inversely related to its demand by those of a lower income level.
• The "snob effect" contrasts most other microeconomic models, in that the demand curve can have a positive slope, rather than the typical negatively sloped demand curve of normal goods.

Bandwagon effect

• The bandwagon effect is when people start doing something because everybody else seems to be doing it.
• The bandwagon effect can be attributed to psychological, social, and economic factors. 
• The bandwagon effect originates in politics, where people vote for the candidate who appears to have the most support because they want to be part of the majority.

Substitution effect

• It is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises.
• A product may lose market share for many reasons, but the substitution effect is purely a reflection of frugality. If a brand raises its price, some consumers will select a cheaper alternative. 

Price effect

• It is a concept that looks at the effect of market prices on consumer demand.
• The price effect can be an important analysis for businesses in setting the offering price of their goods and services.
• In general, when prices rise, buyers will typically buy less and vice versa when prices fall.

If the good becomes abundant, its prices will:

1. remain constant
2. become dynamic
3. fall
4. rise

Answer (Detailed Solution Below)

Option 3 : fall

If the good becomes abundant, its prices will fall.

• The demand curve is the relationship between the price and quantity of a good or service.
• There is an inverse relationship between price and demand and due to this the demand curve always has a downward slope.

• According to the law of demand
  • ​​​​when the price of a commodity increase, then the demand decreases
  • when the price of a commodity decreases, then the demand increases
  • keeping other factors remains the same.​
• ​​Assumptions for the Law of Demand
  • ​​No change in the income of consumers 
  • No change is the taste and preference of the consumers 
  • No change in price related to other goods.

If price elasticity is equal to 1, then

1. The demand is elastic
2. The demand is unitary elastic
3. The demand is inelastic
4. The demand is relatively elastic

Answer (Detailed Solution Below)

Option 2 : The demand is unitary elastic

Elasticity is an economic measure of how sensitive an economic factor is to another, for example, changes in price to supply or demand, or changes in demand to changes in income. 

Price elasticity of demand is an economic measurement of how the quantity demanded of a good will be affected by changes in its price. In other words, it’s a way to figure out the responsiveness of consumers to fluctuations in price.

Type Of Price Elasticity	Explanation	Graph
Perfectly Elastic Demand	⇒ When a small change in the price of a product causes a major change in its demand, it is said to be perfectly elastic demand. ⇒ In perfectly elastic demand, a small rise in price results in a fall in demand to zero, while a small fall in price causes an increase in demand to infinity. ⇒ In such a case, the demand is perfectly elastic or e = ∞.
Relatively Elastic Demand	⇒ Relatively elastic demand is when a product or service's demanded quantity changes by a greater percentage than changes in price. ⇒ In such case, e > 1.
Unitary Elastic Demand	⇒ When the proportionate change in price produces the same change in the demand of the product, the demand is referred to as unitary elastic demand. ⇒ The numerical value for unitary elastic demand is equal to one (e = 1). ⇒ The demand curve for unitary elastic demand is represented as a rectangular hyperbola.
Perfectly Inelastic Demand	⇒ Perfectly inelastic demand is one when there is no change produced in the demand of a product with a change in its price. ⇒ The numerical value for perfectly inelastic demand is zero (e = 0).
Relatively Inelastic Demand	⇒ Relatively inelastic demand is one when the percentage change produced in demand is less than the percentage change in the price of a product.  ⇒ The numerical value of relatively elastic demand ranges between zero to one (e < 1)

Arrange the following products in the increasing order of price elasticities

(A) Homogeneous products

(B) Differentiated products

(C) Necessities

(D) Durable goods

Choose the correct answer from the options given below:

1. (C), (B), (D) and (A)
2. (A), (B), (C) and (D)
3. (A), (C), (B) and (D)
4. (C), (A), (B) and (D)

Answer (Detailed Solution Below)

Option 1 : (C), (B), (D) and (A)

Price elasticity of demand is an economic measure of the change in the quantity demanded or purchased of a product in relation to its price change.

Expressed mathematically, it is: 

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price.

The following products in the increasing order of price elasticities:

1. Normal goods/ Necessities
   • whose income elasticity of demand is between zero and one are typically referred to as necessary goods, which are products and services that consumers will buy regardless of changes in their income levels.
   • Examples of necessary goods and services include tobacco products, haircuts, water, and electricity
2. Product differentiation
   • It is the process of distinguishing a product or service from others.
   • This involves detailing the characteristics that are valued by customers that make it unique.
   • When utilized successfully, product differentiation creates a competitive advantage as customers view your product as superior.
3. Durable goods:
   • A durable good or a hard good or consumer durable is a good that does not quickly wear out, or more specifically, one that yields utility over time rather than being completely consumed in one use.
   • Items like bricks could be considered perfectly durable goods because they should theoretically never wear out.
   • Highly durable goods such as refrigerators or cars usually continue to be useful for three or more years of use, so durable goods are typically characterized by long periods between successive purchases.
   • The elasticity of demand for durable goods is greater than unity.
4. Homogenous products 
   • Products are considered to be homogenous when they are perfect substitutes and buyers perceive no actual or real differences between the products offered by different firms.
   • Price is the single most important dimension along which firms producing homogenous products compete.

Therefore, option 1 is the right answer.

For a decline in price, Total Revenue (TR) increases if demand is ___________

1. Elastic
2. Inelastic
3. Unitary elastic
4. Zero elastic

Answer (Detailed Solution Below)

Option 1 : Elastic

For a decline in price, Total Revenue (TR) increases if demand is elastic.

Total revenue is price multiplied by quantity demanded (TR = P x Qd).

If demand is elastic at a given price level, then a company should cut its price, the percentage drop in price will result in an even larger percentage increase in the quantity sold—thus raising total revenue.

However, if demand is inelastic at the original quantity level, then the company raises its prices, the percentage increase in price will result in a smaller percentage decrease in the quantity sold—and total revenue will rise.

Zero elasticity refers to the extreme case in which a percentage change in price, no matter how large, results in zero change in quantity. Constant unitary elasticity in either a supply or demand curve refers to a situation where a price change of one percent results in a quantity change of one percent.

A unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded or supplied.

Match the items of List I with the items of List II and choose the correct answer from the code given below.

1. (a) - (i), (b) - (ii), (c) - (iii), (D) - (iv)
2. (a) - (iv), (b) - (iii), (c) - (i), (d) - (ii)
3. (a) - (iii), (b) - (i), (c) - (iv), (d) - (ii)
4. (a) - (iv), (b) - (i), (c) - (ii), (d) - (iii)

Answer (Detailed Solution Below)

Option 3 : (a) - (iii), (b) - (i), (c) - (iv), (d) - (ii)

Below is the explanation of the right answer.

Thus, option 3 is the correct answer

The inverse relationship between the variation in the price and the variation in the quantity demanded is not due to

1. Price effect
2. Entry and exit of buyers
3. Gossen's laws of consumption
4. Law of substitution

Answer (Detailed Solution Below)

Option 4 : Law of substitution

Law of Demand

1. The law of supply and demand is a keystone of modern economics.
2. According to this theory, the price of a good is inversely related to the quantity offered.
3. This makes sense for many goods, since the more costly it becomes, fewer people will be able to afford it and demand will subsequently drop.

The inverse relationship between variations in the price and quantity demanded is not due to the Law of substitution.

Explanation:

Law of substitution increase in the demand for a product with low marginal utility will get substitutes by another product with high marginal utility.

​

1. Price effect: inverse relationship between the price of a product and its quantity demanded, i.e. if price increase, quantity demanded decreases and vice versa.
2. Gossen's law of consumption is about Diminishing marginal utility of a consumer, i.e. as consumers consume more and more of a commodity; its utility for the product keeps on decreasing. After some point, it becomes negative when it becomes less than the utility for the money consumer stops consumption.

The cross elasticity of demand between the complementary products is:

1. Positive
2. Zero
3. Negative
4. Infinite

Answer (Detailed Solution Below)

Option 3 : Negative

The correct answer is Negative

Complementary goods are products which are used together and hence, their demand exist because of one another. For example - Tennis balls and tennis rackets.

• Cross price elasticity of demand is a measure of how responsive a good's demand is to a change in the price of a related good.
• It is always expressed as a percentage.
• The cross elasticity of demand for substitute goods is always positive because the demand for one good increases when the price for the substitute good increases.
• Alternatively, the cross elasticity of demand for complementary goods is negative

Cross price elasticity of Complementary goods:

• The demand for complementary items will have a negative cross elasticity.
• When the price of one commodity rises, demand for the other two goods falls.
• The higher the cross elasticity of demand, the more closely related the commodities are.

For a decline in price, total revenue declines if the demand of the product is

1. Inelastic
2. Elastic
3. Unitary elastic
4. Zero elastic

Answer (Detailed Solution Below)

Option 1 : Inelastic

The correct answer is inelastic

• Price elasticity of demand is an economic measurement of how the quantity demanded of a good will be affected by changes in its price. In other words, it’s a way to figure out the responsiveness of consumers to fluctuations in price.
• When the price of a good or service influences consumer demand, this is known as elastic demand. Consumers will buy a lot more if the price drops just a little. If prices rise somewhat, they will reduce their purchases and wait for pricing to return to normal.
• Inelastic demand is a term that economists use to refer to a situation where demand for an item remains the same, no matter how far its price rises or falls.

Inelastic Demand case

 In the inelastic demand, a one percent change in the price results in a less than one percent change in the quantity demanded. A price increase will therefore increase total revenue, while a price decrease will decrease total revenue.

Elastic Demand Case:

 In the elastic demand, the percentage change in quantity demanded is greater than the percentage change in price, so raising the price in this region of the demand curve will decrease total revenue while lowering the price increases total revenue.

The given demand curve has

1. Infinite slope and zero elasticity
2. Zero slope and infinite elasticity
3. Zero slope and unit elasticity
4. Zero slope and zero elasticity

Answer (Detailed Solution Below)

Option 2 : Zero slope and infinite elasticity

The correct answer is Zero slope and infinite elasticity.

• If the demand curve is horizontal its slope is zero, but its elasticity is infinite.
• By contrast, if the demand curve is a vertical straight line its slope is infinite, but elasticity is zero.
• If the demand curve is a straight line its slope is constant, but elasticity falls as price drops.

What is the value of price elasticity of demand for the rectangular hyperbola demand curve ?

1. e > 1
2. e < 1
3. e = 1
4. e = 0

Answer (Detailed Solution Below)

Option 3 : e = 1

The correct answer is e = 1.

• A rectangular hyperbola is a curve under which all rectangular areas are equal.
• When the elasticity of demand is equal to unity (e = 1) at all points of the demand curve, then the demand curve is a rectangular hyperbola.
• It is a downward-sloping curve as given in figure:

• In the case of any two points of A and B on the curve, each rectangular area shows total expenditure on the good. Thus, the total expenditure on the good remains constant even as the price of the good increases or decreases.

Price elasticity of demand:

• The price elasticity of demand for a good is defined as the percentage change in demand for a good divided by the percentage change in its price.
• Price elasticity of demand is a pure number, and it does not depend on the units in which the price of the good and the quantity of the good are measured.
• The price elasticity of demand is a negative number, as the demand for a good is negatively related to the price of a good.
•  At a particular price, the percentage change in demand for a good is less than the percentage change in price, and then the demand for the good is inelastic at that price. ep <1
•  At a particular price, the percentage change in demand for a good is equal to the percentage change in price, and then the demand for the good is unitary elastic at that price. ep =1
• At a particular price, the percentage changein demand for a good is greater than the percentage change in price, and then the demand for the good is elastic at that price. ep >1

When a small change in price leads to infinite change in quantity demanded it is called *?

When a small change in price leads great change in the quantity demanded?

When the demand is infinite What is the price change?