Theory of Demand and SupplyPYQ - Dec 2021Question 30 of 20

Elasticity of demand for salt is:

Options

AZero

BUnity

Cgreater than unity

Dless than unity

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Correct Answer

✅ Option a — Zero

All Options:

AZero
BUnity
Cgreater than unity
Dless than unity

Detailed Solution & Explanation

To determine the elasticity of demand for salt, we need to consider its essential characteristics as a product. • Salt is a necessity, and people will continue to buy it regardless of its price, as it is a staple in most diets. • The demand for salt is not significantly affected by changes in its price, as consumers are willing to pay a higher price for it due to its essential nature. • According to the law of demand, elasticity of demand is measured by how responsive the quantity demanded is to a change in price, and for salt, this responsiveness is very low. The correct answer is zero because salt is a product with very low elasticity of demand, meaning that its demand remains relatively constant even when its price changes. Options like unity and greater than unity are incorrect because they imply a higher level of responsiveness to price changes, which is not the case for salt. Less than unity is also incorrect, as it implies some level of responsiveness, whereas salt's demand is almost completely unresponsive to price changes.

About This Chapter: Theory of Demand and Supply

Paper

Paper 4: Business Economics

Weightage

10%

Key Topics

Law of Demand/Supply, Elasticity, Consumer Behavior

One of the most important chapters in the entire CA Foundation Economics paper. It covers the Law of Demand, Law of Supply, Elasticity of Demand (Price, Income, and Cross), Consumer Behavior (Cardinal and Ordinal approaches), and the concept of Consumer Surplus. Understanding demand and supply curves and their shifts is essential for grasping market dynamics.

View Official ICAI Syllabus

Exam Strategy Tip

Master the difference between 'Change in Demand' (shift) and 'Change in Quantity Demanded' (movement). This distinction alone can secure 3-5 marks. Also practice Elasticity numerical calculations.

Key Concepts to Understand