Question

1) What changes Quantity demand and Quantity supply?

2) What determines elasticity?

3) What makes elasticity elastic or inelastic?

4) Explain how government use of subsidies can be counterproductive. Give 3 examples. Keep the answer to the question short.

5) Explain how government use of taxes can be counterproductive. Give 3 examples. Keep the answer to the question short.

Answer 1

1. Changes in quantity demand and quantity supply happens when there is a change in the price and other things remains constant. With a changes in the price the quanitity demand and quantity supply changes. This is also called as contraction and expansion of demand. Price changes quantity demand and quantity supply.

2 Determinants of elasticity of demand

a. Nature of the commodity

b. Substitutes of the commodity,

c. price level of the product,

d. Income level of the consumer and

e. Distribution of Income in society.

3. Elasticity is elastic if there is a change in the quantity change with a change in the price. If the percentage change in the quantity demanded is more than the percentage change in the price then it is elastic.

If the percentage change in the qunatity demanded is less than the percentage change in the price, elasticity will be inelastic.