Question 3 (c)(ii)

Why Meera spends more and Kavita less when chocolate costs more

3 marks

Time to write: About 6 minutes
Topic: Elasticity of demand and supply

Question

Question 3 (c)(ii) · 3 marks

The table below shows the total expenditure of Meera and Kavita on chocolates

	Total Expenditure (per month) on chocolates
Price (₹)	Meera	Kavita
60	1080	600
48	960	720

Explain why Meera would spend more on chocolates, while Kavita would spend less when the price of Chocolate increases.

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

6 minfor 3 marks

Read from the question

ExplainEach point stated, then explained in a line or two.

Write it in this order

1 Spending rises with price under inelastic demand and falls under elastic demand 1 mark 2 min
2 Applied to Meera and Kavita with the figures 1½ marks 3 min
3 Possible reasons for the difference ½ mark 1 min

123

Short on time? Step 2 carries 1½ of the 3 marks: guard its minutes.

Try it first. About 6 minutes for 3 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

The link between elasticity and spending. Spending on a good is its price times the quantity bought. When the price rises, the quantity demanded falls, so whether spending goes up or down depends on which change is larger in percentage terms:

if the quantity falls by a smaller percentage than the price rises (inelastic demand), spending rises;
if the quantity falls by a larger percentage than the price rises (elastic demand), spending falls.

Meera: inelastic demand. Her quantity is spending divided by price: ₹960 ÷ ₹48 = 20 chocolates at the lower price and ₹1,080 ÷ ₹60 = 18 at the higher one. The price rises by 25% (₹12 on ₹48) while her quantity falls by only 10% (2 on 20). The fall in quantity is too small to offset the higher price, so her spending rises from ₹960 to ₹1,080. Her price elasticity by the mid-point method in part (i), about 0.47, is less than 1.

Kavita: elastic demand. Her quantity is ₹720 ÷ ₹48 = 15 chocolates at the lower price and ₹600 ÷ ₹60 = 10 at the higher one. The same 25% rise in price cuts her quantity by about 33% (5 on 15). The fall in quantity outweighs the higher price, so her spending falls from ₹720 to ₹600. Her mid-point elasticity, 1.8, is greater than 1.

Why their responses differ. The table does not say why, but the usual reasons for such a difference are:

for Meera, chocolate may be a habit she treats almost as a necessity, with no close substitute in her eyes, so she keeps buying nearly as much;
Kavita may see sweets, biscuits or ice cream as close substitutes, so she switches to them when chocolate becomes dearer.

Conclusion. Meera spends more because her demand for chocolate is price-inelastic, and Kavita spends less because hers is price-elastic.

Where the 3 marks sit

#	Component	Marks
1	Spending rises with price under inelastic demand and falls under elastic demand	1
2	Applied to Meera and Kavita with the figures	1.5
3	Possible reasons for the difference	0.5
	Total	3

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