How is the magnitude of price elasticity for an individual good determined? 1. By the degree to which the good is a necessity or luxury 2. By the extent to which substitutes are available 3. By the rate of income growth in the economy 4. By the relative importance of the good in the consumer's budget Select the correct answer using the code given below.
- A.1, 2 and 3
- B.1 and 4 only
- C.1, 2 and 4
- D.3 and 4
Correct answer
Explanation
The correct answer is C, 1, 2 and 4. The nature of the good, its substitutes and its share in the budget decide how strongly demand reacts to price; the growth of income in the economy does not.
Price elasticity of demand measures how much the quantity demanded changes when the good's own price changes. Necessities such as salt or medicines have inelastic demand, because people buy them whatever the price, while luxuries are elastic (statement 1). A good with many close substitutes is elastic, because buyers switch when its price rises (statement 2). A good that takes a large share of the budget is more elastic than a matchbox or a pencil, whose price hardly matters (statement 4). Income growth (statement 3) shifts the whole demand curve and is measured by income elasticity, not price elasticity.
A is wrong: it includes statement 3 and leaves out statement 4.
B is wrong: it leaves out the availability of substitutes.
D is wrong: statement 3 is not a determinant, and statements 1 and 2 are missing.
Exam tip: price elasticity depends on necessity or luxury, substitutes, budget share, time and number of uses.
Practice Questions
View allWhich one of the following statements about production possibility frontier is not correct?
- A.The production possibility frontier slopes downwards to the right as the resources are limited.
- B.The different combinations of various goods and services given the available resources and technology are denoted by the production possibility frontier.
- C.Any point on or inside the production possibility frontier is attainable under the existing technology and resources.
- D.On the production possibility frontier, the output of one commodity can be increased without changing the output of another commodity.
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On the frontier all resources are already fully used, so more of one good can be produced only by giving up some of the other.
Read the full explanation →Consider the following statements about the Rashtriya Gokul Mission :
I. It is important for the upliftment of rural poor as majority of low producing indigenous animals are with small and marginal farmers and landless labourers.
II. It was initiated to promote indigenous cattle and buffalo rearing and conservation in a scientific and holistic manner.
Which of the statements given above is/are correct?
- A.I only
- B.II only
- C.Both I and II
- D.Neither I nor II
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The Rashtriya Gokul Mission was launched to conserve and develop indigenous cattle and buffalo breeds scientifically, and it matters most to the small farmers and landless labourers who keep most of these animals.
Read the full explanation →Atal Innovation Mission is set up under the
- A.Department of Science and Technology
- B.Ministry of Labour and Employment
- C.NITI Aayog
- D.Ministry of Skill Development and Entrepreneurship
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The Atal Innovation Mission (AIM) was set up in 2016 by NITI Aayog as the Government of India's flagship programme to promote innovation and entrepreneurship.
Read the full explanation →Consider the following statements :
1. The Government of India provides Minimum Support Price for niger (Guizotia abyssinica) seeds.
2. Niger is cultivated as a Kharif crop.
3. Some tribal people in India use niger seed oil for cooking.
How many of the above statements are correct?
- A.Only one
- B.Only two
- C.All three
- D.None
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Nigerseed is one of the oilseeds covered by MSP, it is grown mainly in the kharif season, and tribal communities use its oil for cooking.
Read the full explanation →Why does the Government of India promote the use of 'Neem-coated Urea' in agriculture?
- A.Release of Neem oil in the soil increases nitrogen fixation by the soil microorganisms
- B.Neem coating slows down the rate of dissolution of urea in the soil
- C.Nitrous oxide, which is a greenhouse gas, is not at all released into atmosphere by crop fields
- D.It is a combination of a weedicide and a fertilizer for particular crops
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The neem layer releases nitrogen slowly, so crops take up more of it and less is lost. Plain urea dissolves fast and much of its nitrogen is lost by leaching into groundwater and as gases.
Read the full explanation →