IGCSE Economics Paper-2: Specimen Questions with Answers 87 - 88 of 100

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Demand usually varies with price but the extent of variation is not uniform in all cases.

Question 87 (1 of 5 Based on Passage)

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What is point elasticity of demand?

Explanation

Marshall suggested method of measuring point elasticity is known as point elasticity or geometrical method for measuring price elasticity at a point on the demand curve. The point elasticity is measured by the ratio of lower segment of the curve below the given point to the upper segment of the curve above the point.

Price elasticity is different at different points on the demand curve. Point elasticity effectively measures at a point on the demand curve assuming infinitely small changes in price and quantity variables.

Demand Curve

Question 88 (2 of 5 Based on Passage)

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Distinguish between price elasticity, income elasticity and cross elasticity.

Explanation

Price Elasticity and Income Elasticity
S. no.Price elasticityIncome elasticity
1.Price elasticity of demand measures the change in quantity demanded against the price of that productIncome elasticity of demand measures the change in quantity demanded against consumer՚s income level
2.General relationship between price and quantity demanded is adverse although there are some exceptionsGeneral relationship between price and quantity demanded is positive although there are some exceptions
3.Products can be categorized as elastic, inelastic and unitary elasticProducts can be categorized as inferior, Luxury, normal and necessity.

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