Elasticity of Demand: ISC Class 12 Economics Notes, Methods and Numericals

What Elasticity of Demand is about

Weightage: Elasticity of Demand is part of the unit Microeconomic Theory: Demand, Elasticity of Demand, Supply, which carries 16 of the 80 theory marks, shared with 2 other chapters. Questions on it can appear in any section of the paper.Source: CISCE ISC Economics syllabus, examination year 2027, distribution of marks

Key concepts

Meaning and types of elasticity of demand

Elasticity of demand is the degree of responsiveness of quantity demanded of a good to a change in any of its determinants.

• Price elasticity (Ed) = %ΔQ ÷ %ΔP (own price).
• Income elasticity (Ey) = %ΔQ ÷ %ΔY (consumer's income).
• Cross elasticity (Exy) = %ΔQx ÷ %ΔPy (price of a related good Y).

Price elasticity is negative because price and quantity move in opposite directions; when comparing degrees we use its absolute value, but in answers keep the sign, writing for example Ed = (−)1.5.

Worked example

Suppose the price of a notebook falls from ₹50 to ₹40 and the quantity demanded rises from 100 to 130. Calculate price elasticity of demand and state its degree. [2 marks]

Try it first, then show the solutionSolution

1. %ΔQ = (130 − 100) ÷ 100 × 100 = 30%; %ΔP = (40 − 50) ÷ 50 × 100 = −20%.
2. Ed = 30 ÷ (−20) = −1.5.

Answer: Ed = (−)1.5: relatively elastic demand.

Degrees of price elasticity

Degree	Value of	Ed		Demand curve	Example
Perfectly elastic	∞	Horizontal straight line	Product of one firm under perfect competition
Relatively elastic	> 1	Flatter	Luxury cars, branded clothes
Unitary elastic	= 1	Rectangular hyperbola	Total spending constant
Relatively inelastic	< 1	Steeper	Salt, rice, medicines
Perfectly inelastic	0	Vertical straight line	Life-saving drug in an emergency

A relatively elastic curve: a small % change in price causes a larger % change in quantity. A relatively inelastic curve: a large % change in price causes a smaller % change in quantity.

Worked example

Suppose a 10% rise in the price of insulin leaves the quantity bought by diabetic patients unchanged. Identify the degree of elasticity and describe its demand curve. [2 marks]

Try it first, then show the solutionSolution

1. %ΔQ = 0 for a 10% change in price, so Ed = 0.
2. The demand curve is a vertical straight line parallel to the price axis.

Answer: Perfectly inelastic demand; vertical demand curve.

Percentage (proportionate) method

Ed = (ΔQ ÷ Q) ÷ (ΔP ÷ P) = (ΔQ ÷ ΔP) × (P ÷ Q), where P and Q are the original price and quantity, ΔQ = Q1 − Q and ΔP = P1 − P.

This is the only method on which the syllabus asks numericals. Types of question:

• Find Ed from two prices and quantities.
• Find the new quantity (or the original quantity) when Ed and the change in price are given.
• Find the percentage change in quantity when Ed and the percentage change in price are given: %ΔQ = Ed × %ΔP.

Keep the negative sign in the formula: with Ed = −0.8 and a 20% rise in price, %ΔQ = −0.8 × 20 = −16%, a fall.

Worked example

Suppose the price elasticity of demand for a pen is (−)0.8. When its price rises from ₹25 to ₹30, the quantity demanded falls by 32 units. Find the quantity demanded at ₹30. [3 marks]

Try it first, then show the solutionSolution

1. %ΔP = (30 − 25) ÷ 25 × 100 = 20%. %ΔQ = Ed × %ΔP = −0.8 × 20 = −16%.
2. A fall of 32 units is 16% of the original quantity: Q = 32 ÷ 0.16 = 200 units.
3. Quantity at ₹30 = 200 − 32 = 168 units.

Answer: 168 units (original quantity 200).

Total expenditure method

Compare total expenditure (P × Q) before and after a price change:

Price change	Total expenditure	Elasticity
Price falls	Rises	Ed > 1 (elastic)
Price falls	Constant	Ed = 1 (unitary)
Price falls	Falls	Ed < 1 (inelastic)

(When price rises the directions reverse: TE falls if elastic, stays the same if unitary, rises if inelastic.) The method tells only whether Ed is more than, equal to or less than 1, not its exact value.

Worked example

Suppose the schedule below shows the demand for a snack. Using the expenditure method, state the elasticity for each fall in price. [3 marks]

Price (₹)	Quantity	Total expenditure (₹)
10	100	1,000
8	140	1,120
6	160	960
4	240	960

Try it first, then show the solutionSolution

1. ₹10 → ₹8: TE rises 1,000 → 1,120: elastic (Ed > 1).
2. ₹8 → ₹6: TE falls 1,120 → 960: inelastic (Ed < 1).
3. ₹6 → ₹4: TE constant at 960: unitary (Ed = 1).

Answer: Elastic, inelastic, unitary in turn.

Geometric (point) method

For a straight-line demand curve meeting both axes at A (price axis) and B (quantity axis), the elasticity at any point C on it is:

Ed at C = lower segment (CB) ÷ upper segment (CA)

• At the midpoint: Ed = 1.
• Above the midpoint (towards A): Ed > 1.
• Below the midpoint (towards B): Ed < 1.
• At A (on the price axis): Ed = ∞.
• At B (on the quantity axis): Ed = 0.

For a non-linear curve, draw a tangent at the point to meet both axes and apply the same ratio. To show Ed = 0, the line must actually touch the quantity axis.

Worked example

Suppose on a straight-line demand curve AB, point C is such that CB = 3 cm and CA = 2 cm. Find Ed at C and mark where Ed = 0 and Ed > 1. [2 marks]

Try it first, then show the solutionSolution

1. Ed at C = CB ÷ CA = 3 ÷ 2 = 1.5.
2. Ed = 0 at B, where the curve meets the quantity axis; Ed > 1 anywhere between the midpoint and A (C is one such point).

Answer: Ed = 1.5 at C; Ed = 0 at B.

Income and cross elasticity; factors affecting price elasticity

Income elasticity Ey = %ΔQ ÷ %ΔY:

• Ey > 0: normal good (Ey > 1 luxuries, 0 < Ey < 1 necessities).
• Ey < 0: inferior good (coarse grains).
• Ey = 0: neutral good (salt).

Cross elasticity Exy = %ΔQx ÷ %ΔPy:

• Exy > 0: substitutes (tea and coffee; pizzas from two rival outlets).
• Exy < 0: complements (cars and petrol).
• Exy = 0: unrelated goods.

Factors affecting price elasticity:

• Nature of the good: necessities inelastic, luxuries elastic.
• Availability of substitutes: more substitutes, more elastic.
• Proportion of income spent: small share (matchbox) inelastic.
• Number of uses: many uses (electricity, milk) elastic.
• Possibility of postponement: urgent goods inelastic.
• Habits: habitual goods inelastic.
• Time period: demand is more elastic in the long run.
• Price level: very high- or very low-priced goods tend to be inelastic.

Worked example

Suppose a family's income rises from ₹20,000 to ₹25,000 a month and its purchase of coarse millet falls from 60 kg to 54 kg. Calculate income elasticity and classify the good. [2 marks]

Try it first, then show the solutionSolution

1. %ΔQ = (54 − 60) ÷ 60 × 100 = −10%; %ΔY = 25%.
2. Ey = −10 ÷ 25 = −0.4.

Answer: Ey = −0.4: an inferior good.

Elasticity of Demand in real life

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

Topics in this chapter

• Measuring Elasticity of Demand: Percentage, Expenditure and Geometric Methods

Elasticity of Demand: key facts

Price elasticity (percentage method)

Ed = %ΔQ ÷ %ΔP = (ΔQ ÷ ΔP) × (P ÷ Q)

P and Q are the original values; keep the minus sign.

Change in quantity

%ΔQ = Ed × %ΔP

Geometric method

Ed = lower segment ÷ upper segment of a straight-line demand curve

Income elasticity

Ey = %ΔQ ÷ %ΔY

Cross elasticity

Exy = %ΔQx ÷ %ΔPy

How the board asks Elasticity of Demand

The question patterns to expect, and the method that works for each.

Tricks to remember Elasticity of Demand

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

• Expenditure method: "Same direction = inelastic"

  If price and total expenditure move in the same direction, demand is inelastic; opposite directions, elastic; no change, unitary.

  Use it when: Expenditure method.

• Geometric: "Lower over upper"

  Ed = lower segment ÷ upper segment; ∞ at the top, 1 in the middle, 0 at the bottom.

  Use it when: Point method diagrams.

• Cross sign: "Substitutes Smile (+), Complements Cry (−)"

  Positive cross elasticity for substitutes, negative for complements.

  Use it when: Cross elasticity.

Elasticity of Demand: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section C style)

Read the situation, then answer every part. In the board paper this is a 8-mark question split into 2 + 2 + 2 + 2 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Elasticity of Demand

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

• ✗Mistake: Formula misapplied in an MCQ

  CISCE examiners' comments, 2024: "Unclear about the formula for price elasticity of demand, so applied it wrongly".

  ✓Do this: Ed = %ΔQ ÷ %ΔP; rearrange for %ΔQ = Ed × %ΔP.

  Usually costs: 1 mark.

• ✗Mistake: Negative sign ignored; question left half done

  CISCE examiners' comments, 2025: "Misused or omitted the negative sign of elasticity"; "Left the answer incomplete by not finding quantity at ₹20 after finding initial quantity".

  ✓Do this: Carry the sign through every step; read what quantity is finally asked.

  Usually costs: 1 mark.

• ✗Mistake: Demand curve not touching the axes

  CISCE examiners' comments, 2024: "Demand curve not touching either axis, so ep = 0 could not be shown"; "Drew the standard degrees-of-elasticity diagram instead of using the point method".

  ✓Do this: For the point method draw one straight line from the price axis to the quantity axis and mark points on it.

  Usually costs: 1-2 marks.

• ✗Mistake: Treating substitutes as complements

  CISCE examiners' comments, 2025: "Failed to separate substitutes (burgers at two outlets) from complementary goods when linking the Assertion and Reason".

  ✓Do this: Same product from two sellers = substitutes; goods used together = complements.

  Usually costs: 1 mark.

Practice questions on 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

   A vertical demand curve shows:
   (a) perfectly elastic demand
   (b) unitary elastic demand
   (c) perfectly inelastic demand
   (d) relatively elastic demand

   Hint

   Quantity never changes.

   Answer

   (c)

2. Q2 · 1 mark · Very short answerBoard level

   Cross elasticity between two goods is −0.6. How are they related?

   Hint

   Sign.

   Answer

   Complements.

3. Q3 · 2 marks · Short answerBoard level

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

   Hint

   Substitutes, share of income.

   Answer

   Availability of close substitutes; a large share of income spent on it (also luxuries, many uses, long time period).

4. Q4 · 2 marks · Short answerHarder board level

   When price falls by 10%, total expenditure on a good remains the same. What is Ed? Describe the shape of the demand curve.

   Hint

   Unitary.

   Answer

   Ed = 1; the demand curve is a rectangular hyperbola.

5. Q5 · 2 marks · Short answerHarder board level

   Price of a good rises from ₹10 to ₹12 and quantity falls from 500 to 450. Calculate Ed.

   Hint

   Original values as base.

   Answer

   %ΔQ = −10%; %ΔP = 20%; Ed = −0.5 (inelastic).

6. Q6 · 2 marks · Short answerHarder board level

   Income rises by 20% and demand for branded apparel rises by 30%. Calculate Ey and classify the good.

   Hint

   Greater than 1?

   Answer

   Ey = 1.5: normal good, luxury.

7. Q7 · 2 marks · Short answerHOTS / competency

   Why is demand more elastic in the long run than in the short run?

   Hint

   Time to adjust.

   Answer

   Over time consumers find substitutes, change habits and adjust equipment (for example switching to CNG vehicles after a petrol price rise), so quantity responds more.

8. Q8 · 2 marks · Short answerHOTS / competency

   Ed for a good is (−)2. Its price falls from ₹50 to ₹45 and new quantity demanded is 360. Find the original quantity.

   Hint

   %ΔQ = 20%.

   Answer

   %ΔP = −10%; %ΔQ = +20%; 1.2Q = 360, so Q = 300.

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 at the midpoint of a straight-line demand curve?Show answer

   One.

2. 2.Shape of a unitary elastic demand curve?Show answer

   Rectangular hyperbola.

3. 3.Sign of income elasticity for inferior goods?Show answer

   Negative.

4. 4.Which method is used for ISC numericals?Show answer

   Percentage method only.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Ed = %ΔQ ÷ %ΔP (negative).
• ☐∞ horizontal; 0 vertical; 1 rectangular hyperbola.
• ☐TE and P same direction → inelastic.
• ☐Point method: lower ÷ upper segment.
• ☐Ey > 0 normal, < 0 inferior; Exy > 0 substitutes, < 0 complements.

Elasticity of Demand: frequently asked questions