Amit and Sumit went to a shop to buy good X. Without knowing the price and without asking, Amit asked for 5 units of good X, whereas Sumit asked for good X, worth Rs.500.
In context of this case, which of the following is correct?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → The demand for good X for Amit is perfectly inelastic and for Sumit it is unitary elastic.
The price elasticity of demand measures how strongly the quantity a buyer takes responds to a change in price: the percentage change in quantity compared with the percentage change in price. Amit and Sumit both decide without knowing the price, but they fix different things: Amit fixes the quantity, Sumit the money he spends.
Amit asks for 5 units whatever the price turns out to be. His quantity does not respond to price at all, so his demand curve is a vertical line at 5 units and the elasticity is zero: his demand is perfectly inelastic.
Sumit asks for Rs.500 worth of the good whatever the price. His spending stays at Rs.500, so a higher price means proportionately fewer units and a lower price proportionately more. Expenditure on a good stays unchanged when price changes only if the percentage change in quantity equals the percentage change in price, so his demand is unitary elastic; his demand curve is a rectangular hyperbola, price × quantity = 500.
Why the other options are incorrect
Option (1) The demand for good X by consumers is inelastic. — Incorrect. It treats the two buyers alike, but Sumit’s demand responds to price while Amit’s does not.
Option (2) The demand for good X by consumers is elastic. — Incorrect. Elastic demand means quantity changes by a larger percentage than price; neither buyer behaves that way.
Option (3) The demand for good X by Amit is elastic, whereas the demand for good X by Sumit is inelastic. — Incorrect. Amit’s fixed quantity is the most inelastic case possible, and Sumit’s fixed spending gives an elasticity of one, not less.
NCERT (2025-26): “Constant Elasticity Demand Curve … But sometimes, the demand curves can be such that the elasticity of demand remains constant throughout. Consider, for example, a vertical demand curve ….… A price never leads to a change in the demand for such a demand curve and |eD| is always 0. Therefore, a vertical demand curve is perfectly inelastic.… …The expenditure on the good would remain unchanged if and only if the percentage change in quantity is equal to the percentage change in price, i.e., if the good is unit-elastic…” |