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Price Elasticity of Demand Class 11 Economics Solved

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EconomicsCBSE Class 11 · Theory of Consumer Behaviour

Law of Demand and Price Elasticity of Demand: Percentage and Total Expenditure Methods

Updated 17 October 2026 · Fact-checked

The law of demand states that, other things equal, a fall in price raises quantity demanded and vice versa. Price elasticity of demand measures the responsiveness of quantity demanded to price: Ed = (percentage change in quantity) / (percentage change in price). Demand is elastic if |Ed| > 1, unitary if 1 and inelastic if < 1. In the total expenditure method, TE moves opposite to price if demand is elastic, with price if inelastic, and stays unchanged if unitary.

When price falls and the green gain is bigger than the red loss, total expenditure rises, so demand is elastic (Ed 1.5).

Illustration drawn for QuestionBuddy.

Understand Price Elasticity of Demand

Demand and the law. Quantity demanded is the amount a consumer is willing and able to buy at a price in a period. Law of demand: other things unchanged, quantity demanded falls when price rises and rises when price falls (inverse relation; demand curve slopes downward). Determinants of demand: price, prices of related goods (substitutes, complements), income (normal and inferior goods), tastes and preferences, expectations. A change in price causes a movement along the curve; a change in any other determinant shifts the curve. Market demand = sum of individual demands at each price.

Price elasticity of demand (Ed). The degree of responsiveness of quantity demanded to a change in price.

Percentage method: Ed = (% change in quantity demanded) ÷ (% change in price) = (ΔQ/Q) ÷ (ΔP/P), where Q and P are the initial values. The sign is negative for normal goods; we consider the magnitude.

Worked example 1. P falls Rs 10 → Rs 8; Q rises 100 → 130. %ΔP = −2/10 × 100 = −20%; %ΔQ = +30/100 × 100 = +30%. Ed = 30 ÷ (−20) = −1.5, so |Ed| = 1.5 > 1: elastic.
Worked example 2. P rises Rs 20 → Rs 25; Q falls 50 → 48. %ΔP = +25%; %ΔQ = −4%. |Ed| = 0.16 < 1: inelastic.

Types. Elastic (>1), inelastic (<1), unitary (=1), perfectly elastic (infinite; horizontal curve), perfectly inelastic (0; vertical curve).

Total expenditure method: compare TE = P × Q before and after a price change.

  • Price falls and TE rises (or price rises and TE falls): elastic.
  • Price and TE move in the same direction: inelastic.
  • TE unchanged: unitary.
  • Check with example 1: TE = 10 × 100 = 1000 → 8 × 130 = 1040; price falls, TE rises: elastic ✓. Example 2: 20 × 50 = 1000 → 25 × 48 = 1200; price rises, TE rises: inelastic ✓. Unitary: P 10 → 8, Q 80 → 100: TE 800 → 800.

Using Ed. Quantity change = Ed × price change in per cent. If Ed = −2 and price rises 10 per cent, quantity falls 20 per cent: from 200 units to 160.

Factors affecting Ed. Availability of close substitutes (more substitutes, more elastic); nature of the good (necessity: inelastic; luxury: elastic); share of the good in income (larger share, more elastic); time period (longer, more elastic); number of uses.

Table: type, |Ed|, TE response to a fall in price.

Price Elasticity of Demand: key facts

Percentage method
Ed = (% change in Q) / (% change in P) = (dQ/Q)/(dP/P)
Use initial values
Total expenditure
TE = P x Q | compare before and after
Elastic, unitary, inelastic
Classes
  • |Ed| > 1 elastic
  • = 1 unitary
  • < 1 inelastic
Magnitude
Quantity change
% change in Q = Ed x % change in P
Prediction

How to answer Price Elasticity of Demand questions

Questions give prices and quantities and ask for Ed or its type.

  1. 1Compute percentage changes using initial values.
  2. 2Divide, and compare the magnitude with 1.
  3. 3Check with total expenditure: TE direction versus price direction.
  4. 4For predictions multiply Ed by the percentage change in price.
  5. 5Name the factors affecting the good in the question.

Price Elasticity of Demand in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Salt versus cinema tickets

Suppose a 10 per cent rise in the price of salt barely changes how much people buy, while a 10 per cent rise in cinema ticket prices cuts attendance sharply.

Compare their elasticities and explain.

Try it first, then show the solutionSolution
  1. Salt is a necessity with a tiny share of income and no close substitute: inelastic.
  2. Cinema is a luxury with substitutes (OTT, outings): elastic.
  3. So the quantity of tickets falls by more than 10 per cent.

Answer: Salt inelastic; cinema elastic.

Memory hook: Necessity, no substitute: inelastic.

Tricks to remember Price Elasticity of Demand

Short memory aids. Say each one aloud once, then use it on a question the same day.

  • Opposite = Elastic

    Elastic: price and TE move opposite.

    Use it when: TE method

  • Same = inelastic

    Inelastic: price and TE move together.

    Use it when: TE method

  • Ed as ratio

    Percentage change in Q over percentage change in P.

    Use it when: Formula

Price Elasticity of Demand: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Compute Ed · 3 marks · Short answerBoard level

When the price of a good falls from Rs 50 to Rs 45, quantity demanded rises from 200 to 230. Find Ed and state its type.

Try it first, then show the solutionSolution
  1. %ΔP = -5/50 x 100 = -10 (1 mark).
  2. %ΔQ = 30/200 x 100 = +15 (1 mark).
  3. Ed = 15/(-10) = -1.5; |Ed| > 1: elastic (1 mark).

Answer: Ed = -1.5; elastic.

Example 2: Inelastic demand · 4 marks · Short answerBoard level

The price of a good rises from Rs 40 to Rs 48 and quantity demanded falls from 100 to 96. Find Ed and check with total expenditure.

Try it first, then show the solutionSolution
  1. %ΔP = +8/40 x 100 = +20; %ΔQ = -4/100 x 100 = -4 (1 mark).
  2. |Ed| = 4/20 = 0.2 < 1: inelastic (1 mark).
  3. TE before = 40 x 100 = 4000; after = 48 x 96 = 4608 (1 mark).
  4. Price and TE rise together: confirms inelastic (1 mark).

Answer: |Ed| = 0.2; inelastic.

Example 3: Total expenditure method · 3 marks · Short answerHarder board level

At price Rs 10 a consumer buys 80 units; at Rs 8 she buys 100. Use the TE method to classify the demand.

Try it first, then show the solutionSolution
  1. TE at Rs 10 = 10 x 80 = 800 (1 mark).
  2. TE at Rs 8 = 8 x 100 = 800 (1 mark).
  3. TE unchanged, so unitary elasticity (1 mark).

Answer: Unitary.

Example 4: Predicting quantity · 3 marks · Short answerHarder board level

Ed of a good is -2. Its price rises by 10 per cent. By what per cent does quantity demanded change, and what is the new quantity if it was 200 units?

Try it first, then show the solutionSolution
  1. % change in Q = Ed x % change in P = -2 x 10 (1 mark).
  2. = -20 per cent (1 mark).
  3. New quantity = 200 x 0.8 = 160 units (1 mark).

Answer: -20 per cent; 160 units.

Example 5: Policy use · 5 marks · Long answerHOTS / competency

A government raises the tax on a good so its price goes up 8 per cent, and quantity falls 5 per cent for cigarettes-like good A, but 16 per cent for a good B. Compute Ed for each, say for which good the total expenditure of consumers rises after the price increase, and explain with the factors that affect elasticity.

Try it first, then show the solutionSolution
  1. Ed(A) = 5/8 = 0.625: inelastic (1 mark).
  2. Ed(B) = 16/8 = 2: elastic (1 mark).
  3. With inelastic A, consumers spend more after the price rise, since quantity falls by less than price rises (1 mark).
  4. With elastic B, quantity falls by a larger percentage than price rises, so expenditure falls (1 mark).
  5. A is likely a necessity or habit with few substitutes; B has close substitutes or is a luxury (1 mark).

Answer: Ed A = 0.625, B = 2; expenditure on A rises, on B falls.

Where students lose marks in Price Elasticity of Demand

The slips examiners see most often, and what to write instead.

  • Mistake: Using final values for percentages

    Base wrong.

    Wrong working

    %ΔP = change / new price.

    Right working

    Divide by the initial value.

    Do this: Initial.

    Usually costs: 1 mark.

  • Mistake: Ignoring magnitude

    Sign confusion.

    Wrong working

    Ed -1.5 is inelastic.

    Right working

    Magnitude 1.5 > 1 is elastic.

    Do this: Use |Ed|.

    Usually costs: 1 mark.

  • Mistake: Elastic when TE rises with price

    Direction mixed.

    Wrong working

    Price up, TE up means elastic.

    Right working

    Same direction means inelastic.

    Do this: Opposite is elastic.

    Usually costs: 1 mark.

Exam tips

  • Always use initial values in the percentage method.
  • Cross-check with the TE method.
  • State the type in words.
  • Link factors to the good.

Practice questions on Price Elasticity of Demand

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

  1. Q1 · 1 mark · MCQBoard level

    If a 5 per cent rise in price reduces quantity demanded by 8 per cent, Ed (magnitude) is
    (a) 0.625 (b) 1 (c) 1.6 (d) 13

    Hint

    8/5.

    Answer

    (c).

  2. Q2 · 1 mark · Assertion-reasonHarder board level

    Assertion (A): When demand is elastic, total expenditure falls when price rises.
    Reason (R): The percentage fall in quantity is greater than the percentage rise in price.
    (a) Both A and R are true and R is the correct explanation of A.
    (b) Both A and R are true but R is not the correct explanation of A.
    (c) A is true but R is false.
    (d) A is false but R is true.

    Hint

    TE logic.

    Answer

    (a).

  3. Q3 · 2 marks · Very short answerBoard level

    State two factors that make demand for a good more elastic.

    Hint

    Substitutes, luxury.

    Answer

    Availability of close substitutes and being a luxury (also a large share of income or a longer time period).

  4. Q4 · 4 marks · Case-basedHarder board level

    Read and answer.
    Suppose when price falls from Rs 50 to Rs 40, quantity demanded rises from 20 to 26.
    (a) Find Ed. (2)
    (b) Classify. (1)
    (c) What happens to total expenditure? (1)

    Hint

    Compute.

    Answer

    (a) %ΔP = -10/50 x 100 = -20; %ΔQ = 6/20 x 100 = +30; Ed = -1.5. (b) Elastic. (c) TE rises from 50 x 20 = 1000 to 40 x 26 = 1040.

  5. Q5 · 3 marks · Short answerHOTS / competency

    Suppose the same good has Ed = 0.4 at present. A shopkeeper wants to raise revenue and considers raising the price 10 per cent. Predict the change in quantity and in revenue, and explain whether the move is wise.

    Hint

    Inelastic.

    Answer

    Quantity falls by 0.4 x 10 = 4 per cent. Revenue rises by about 1.1 x 0.96 - 1 = 5.6 per cent (1.056). Because demand is inelastic, the price rise lifts revenue, so it is wise in the short run, though substitutes may appear later.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

  1. 1.Ed formula?Show answer

    %ΔQ / %ΔP.

  2. 2.Elastic?Show answer

    |Ed| > 1.

  3. 3.Unitary TE?Show answer

    Unchanged.

  4. 4.Substitutes make demand?Show answer

    More elastic.

  5. 5.Necessity is?Show answer

    Inelastic.

  6. 6.Change in price causes?Show answer

    Movement along the curve.

Price Elasticity of Demand: frequently asked questions

What is the law of demand?

Quantity demanded varies inversely with price.

What is Ed?

Responsiveness of quantity to price.

What is the TE method?

Comparing expenditure before and after a price change.

What shifts the demand curve?

Change in income, tastes, related prices or expectations.

What is perfectly inelastic demand?

Quantity does not change with price.