The Covid-19 outbreak became a cause of concern when the World Health Organization (WHO) declared it a pandemic. Soon, lockdowns were seen all over the world. India declared its first lockdown in March 2020 for 21 days, and it was extended later. As the news of the lockdown spread in the country, people rushed to markets to hoard groceries. Vendors sold bread and biscuits to the common man at inflated prices. Supply chains were broken by the complete lockdown, prices rose sharply and the entire economy came to a standstill.
Suppose that, other things remaining the same, a sharp rise in the price of bread leaves the quantity of bread that households buy almost unchanged. What does this show about the demand for bread, and what happens to their spending on bread?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Demand for bread is inelastic, and spending on it rises
If the quantity of bread hardly changes when its price rises sharply, the percentage change in quantity is less than the percentage change in price. So demand for bread is inelastic, as is common for essential goods. With inelastic demand, spending moves in the same direction as price, so spending on bread rises.
Elastic demand would make spending fall, and unit elastic demand would leave it unchanged.
NCERT (2026-27): “2.6 Elasticity of Demand … When the percentage change in quantity demanded is less than the percentage change in market price, eD is estimated to be less than one and the demand for the good is said to be inelastic at that price. Demand for essential goods is often found to be inelastic. …” “2.6.3 Elasticity and Expenditure … The expenditure on the good would change in the same direction as the price change if and only if the percentage change in quantity is less than the percentage change in price, i.e., if the good is price inelastic (see rows 1 and 5 in table 2.5). …” |