NCERT Solutions for Class 12 Economics Chapter 2: Theory of Consumer Behaviour

These Class 12 Economics Chapter 2 solutions cover Theory of Consumer Behaviour from the NCERT textbook Introductory Microeconomics, updated for the 2026–27 session. The chapter explains how a rational consumer chooses the best bundle of goods using two approaches — cardinal utility analysis (total and marginal utility, the law of diminishing marginal utility) and ordinal utility analysis (indifference curves, the marginal rate of substitution and the budget line) — and then derives the demand curve, the law of demand, market demand and price elasticity of demand. Below you get every NCERT exercise question reproduced verbatim and solved step by step (all budget-line, market-demand and elasticity numericals shown with full working), plus key formulas, extra practice, MCQs, Assertion–Reason and FAQs.

Class: 12 Subject: Economics Book: Introductory Microeconomics Chapter: 2 Title: Theory of Consumer Behaviour Session: 2026–27
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Class 12 Economics Chapter 2 – Overview

Chapter 2, Theory of Consumer Behaviour, studies how an individual consumer with a fixed income chooses among goods to get maximum satisfaction — the problem of choice. Under cardinal utility analysis, utility is measured in numbers; total utility (TU) rises while marginal utility (MU) falls, following the Law of Diminishing Marginal Utility, which explains why the demand curve slopes downward. Under ordinal utility analysis, the consumer only ranks bundles: equal-satisfaction bundles trace an indifference curve that is downward sloping and convex because of the diminishing marginal rate of substitution (MRS). The budget line (p1x1 + p2x2 = M) shows affordable bundles; the consumer’s optimum lies where the budget line is tangent to the highest reachable indifference curve, i.e. MRS = price ratio. The chapter then derives the demand curve, distinguishes normal, inferior, substitute and complement goods, builds market demand by horizontal summation, and measures price elasticity of demand and its link with expenditure.

Key Concepts, Terms & Formulas

Utility & Marginal Utility (MU): Utility is a commodity’s want-satisfying capacity. MU is the change in total utility from consuming one more unit.

Law of Diminishing Marginal Utility: MU from each additional unit of a commodity falls as its consumption increases (other consumption held constant). This explains the downward-sloping demand curve.

Indifference curve: the locus of all bundles giving the consumer the same satisfaction. It is downward sloping (monotonic preferences) and convex to the origin (diminishing MRS); two indifference curves never intersect; a higher curve gives greater utility.

Marginal Rate of Substitution (MRS): the amount of good Y the consumer gives up for one extra unit of good X, keeping utility constant. MRS falls as we move down an indifference curve.

Budget set & budget line: the budget set is every bundle the consumer can afford (p1x1 + p2x2 ≤ M); the budget line is the bundles costing exactly her income M.

Consumer’s optimum: the budget line is tangent to the highest attainable indifference curve, so MRS = p1/p2.

Normal / inferior goods: demand for a normal good moves the same way as income; demand for an inferior good moves opposite to income.

Substitutes / complements: demand moves in the same direction as the price of a substitute, and opposite to the price of a complement.

Market demand: the horizontal summation of all individual demand curves at each price.

Marginal utility: MUn = TUn − TUn−1; and TUn = MU1 + MU2 + … + MUn

Budget line: p1x1 + p2x2 = M  ⇒  x2 = M/p2 − (p1/p2)x1

Slope of budget line = − p1/p2; horizontal intercept = M/p1; vertical intercept = M/p2

Price elasticity of demand: eD = (percentage change in quantity) ÷ (percentage change in price) = (ΔQ/Q) × (P/ΔP)

Elasticity on a linear demand curve q = a − bp:   eD = − bp / (a − bp)

Elasticity & expenditure (E = P×Q): if |eD| > 1 expenditure moves opposite to price; if |eD| < 1 it moves with price; if |eD| = 1 expenditure is unchanged.

NCERT Exercises — Full Solutions

All questions below are reproduced verbatim from the NCERT Introductory Microeconomics end-of-chapter Exercises. Answers, derivations and numerical working are original and exam-ready.

1. What do you mean by the budget set of a consumer?

ANSWER The budget set is the collection of all the bundles of goods that a consumer can afford to buy with her given income at the prevailing market prices. Given income M and prices p1 and p2, the budget set consists of every bundle (x1, x2) that satisfies the budget constraint p1x1 + p2x2 ≤ M, with x1 ≥ 0 and x2 ≥ 0.

2. What is budget line?

ANSWER The budget line is the line representing all bundles that cost the consumer exactly her entire income, i.e. all (x1, x2) for which p1x1 + p2x2 = M. Bundles below the budget line cost less than M, and bundles above it are unaffordable. It is a straight, downward-sloping line with horizontal intercept M/p1, vertical intercept M/p2, and slope − p1/p2.

3. Explain why the budget line is downward sloping.

ANSWER A consumer spending her whole income is on the budget line. To buy one more unit of good 1 she must give up some of good 2, because her income is fixed. So an increase in one good is always matched by a decrease in the other — the two quantities move in opposite directions. This inverse relationship makes the budget line slope downward from left to right. Algebraically, the slope is − p1/p2, which is negative since both prices are positive.

4. A consumer wants to consume two goods. The prices of the two goods are Rs 4 and Rs 5 respectively. The consumer’s income is Rs 20. (i) Write down the equation of the budget line. (ii) How much of good 1 can the consumer consume if she spends her entire income on that good? (iii) How much of good 2 can she consume if she spends her entire income on that good? (iv) What is the slope of the budget line?

ANSWER Given p1 = Rs 4, p2 = Rs 5, M = Rs 20. (i) Equation of the budget line: p1x1 + p2x2 = M  ⇒  4x1 + 5x2 = 20. (ii) Spending the entire income on good 1: x1 = M/p1 = 20/4 = 5 units of good 1. (iii) Spending the entire income on good 2: x2 = M/p2 = 20/5 = 4 units of good 2. (iv) Slope = − p1/p2 = − 4/5 = − 0.8.

5. How does the budget line change if the consumer’s income increases to Rs 40 but the prices remain unchanged?

ANSWER With prices unchanged and income rising from Rs 20 to Rs 40, the new budget line is 4x1 + 5x2 = 40. New horizontal intercept = 40/4 = 10 units (was 5); new vertical intercept = 40/5 = 8 units (was 4). The slope is still − p1/p2 = − 4/5, unchanged. So the budget line undergoes a parallel outward (rightward) shift — the consumer can now afford more of both goods, but the relative price (slope) is the same.

6. How does the budget line change if the price of good 2 decreases by a rupee but the price of good 1 and the consumer’s income remain unchanged?

ANSWER Price of good 2 falls from Rs 5 to Rs 4; p1 = Rs 4 and M = Rs 20 are unchanged. New budget line: 4x1 + 4x2 = 20. Horizontal intercept = M/p1 = 20/4 = 5 units — unchanged. Vertical intercept = M/p2 = 20/4 = 5 units (was 4) — it increases. New slope = − p1/p2 = − 4/4 = − 1 (was − 0.8), so the line is now flatter. Thus the budget line pivots outward about the horizontal intercept: the good-1 intercept stays fixed while the good-2 intercept rises from 4 to 5, because good 2 has become cheaper.

7. What happens to the budget set if both the prices as well as the income double?

ANSWER Original: 4x1 + 5x2 = 20. Doubling everything gives p1 = 8, p2 = 10, M = 40, so 8x1 + 10x2 = 40. Dividing this whole equation by 2 returns 4x1 + 5x2 = 20 — exactly the original budget line. Intercepts: 40/8 = 5 and 40/10 = 4, both same as before; slope − 8/10 = − 0.8, same as before. Hence the budget line and the budget set remain completely unchanged. A proportionate change in both prices and income leaves the consumer’s affordable set unaffected.

8. Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2 if she spends her entire income. The prices of the two goods are Rs 6 and Rs 8 respectively. How much is the consumer’s income?

ANSWER Since the bundle (6, 8) lies on the budget line, it must satisfy p1x1 + p2x2 = M. M = (6 × 6) + (8 × 8) = 36 + 64 = Rs 100. So the consumer’s income is Rs 100.

9. Suppose a consumer wants to consume two goods which are available only in integer units. The two goods are equally priced at Rs 10 and the consumer’s income is Rs 40. (i) Write down all the bundles that are available to the consumer. (ii) Among the bundles that are available to the consumer, identify those which cost her exactly Rs 40.

ANSWER Each good costs Rs 10 and income is Rs 40, so the consumer can buy at most 4 units in total: 10x1 + 10x2 ≤ 40, i.e. x1 + x2 ≤ 4 (integers). (i) All affordable (available) bundles (x1, x2): (0,0), (0,1), (0,2), (0,3), (0,4), (1,0), (1,1), (1,2), (1,3), (2,0), (2,1), (2,2), (3,0), (3,1) and (4,0). — 15 bundles in all. (ii) Bundles costing exactly Rs 40 (x1 + x2 = 4): (0,4), (1,3), (2,2), (3,1) and (4,0).

10. What do you mean by ‘monotonic preferences’?

ANSWER Preferences are monotonic if, between any two bundles, the consumer prefers the bundle that has more of at least one good and no less of the other. In other words, more is always better — a bundle with extra quantity of one good (and no reduction in the other) is always preferred to the original bundle.

11. If a consumer has monotonic preferences, can she be indifferent between the bundles (10, 8) and (8, 6)?

ANSWER Compare (10, 8) with (8, 6): the first bundle has more of good 1 (10 > 8) and more of good 2 (8 > 6). Under monotonic preferences a consumer always prefers a bundle that has more of at least one good and no less of the other. Bundle (10, 8) has more of both goods, so the consumer must strictly prefer (10, 8) to (8, 6). Therefore she cannot be indifferent between the two bundles.

12. Suppose a consumer’s preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?

ANSWER (10, 10) vs (10, 9): same good 1, but more of good 2 ⇒ (10, 10) is preferred to (10, 9). (10, 9) vs (9, 9): same good 2, but more of good 1 ⇒ (10, 9) is preferred to (9, 9). Therefore the ranking is (10, 10) > (10, 9) > (9, 9) — (10, 10) is most preferred and (9, 9) least preferred.

13. Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?

ANSWER Compare (6, 6) with (5, 6): both have the same quantity of good 2 (6), but (6, 6) has more of good 1. Under monotonic preferences (6, 6) should be strictly preferred to (5, 6). But the friend is indifferent between them. This contradicts monotonicity, so the friend’s preferences are not monotonic.

14. Suppose there are two consumers in the market for a good and their demand functions are as follows: d1(p) = 20 − p for any price less than or equal to 20, and d1(p) = 0 at any price greater than 20. d2(p) = 30 − 2p for any price less than or equal to 15 and d2(p) = 0 at any price greater than 15. Find out the market demand function.

ANSWER Market demand = horizontal summation of the two individual demands, taking care of the price ranges where each demand becomes zero. For 0 ≤ p ≤ 15: both consumers are active, so market demand = (20 − p) + (30 − 2p) = 50 − 3p. For 15 < p ≤ 20: consumer 2 demands 0, so market demand = d1(p) = 20 − p. For p > 20: both demand 0, so market demand = 0.

15. Suppose there are 20 consumers for a good and they have identical demand functions: d(p) = 10 − 3p for any price less than or equal to 10/3 and d(p) = 0 at any price greater than 10/3. What is the market demand function?

ANSWER With 20 identical consumers, market demand is 20 times the individual demand at each price. For 0 ≤ p ≤ 10/3: Market demand = 20 × (10 − 3p) = 200 − 60p. For p > 10/3: each consumer demands 0, so market demand = 0.

16. Consider a market where there are just two consumers and suppose their demands for the good are given as follows. Calculate the market demand for the good.

pd1d2
1924
2820
3718
4616
5514
6412
ANSWER Market demand at each price = d1 + d2 (horizontal summation).
Price (p)d1d2Market demand (d1 + d2)
192433
282028
371825
461622
551419
641216

17. What do you mean by a normal good?

ANSWER A normal good is one whose demand moves in the same direction as the consumer’s income. When income rises, the quantity demanded of a normal good increases; when income falls, demand for it decreases (prices held constant). Most goods — for example, branded clothing or quality food — are normal goods.

18. What do you mean by an ‘inferior good’? Give some examples.

ANSWER An inferior good is one whose demand moves in the opposite direction of income. As the consumer’s income rises, demand for an inferior good falls (she switches to better substitutes), and as income falls, demand for it rises. Examples: low-quality (coarse) cereals, and travel by ordinary bus instead of taxi or air. As income increases, the consumer typically reduces consumption of these and shifts to higher-quality alternatives.

19. What do you mean by substitutes? Give examples of two goods which are substitutes of each other.

ANSWER Substitutes are goods that can be used in place of each other, so that a rise in the price of one increases the demand for the other (demand for a good moves in the same direction as the price of its substitute). Examples: tea and coffee — if the price of coffee rises, consumers shift to tea, raising tea’s demand. (Other pairs: Pepsi and Coca-Cola.)

20. What do you mean by complements? Give examples of two goods which are complements of each other.

ANSWER Complements are goods consumed together, so that a rise in the price of one decreases the demand for the other (demand for a good moves in the opposite direction of the price of its complement). Examples: tea and sugar — if the price of sugar rises, the demand for tea falls. (Other pairs: pen and ink; shoes and socks.)

21. Explain price elasticity of demand.

ANSWER Price elasticity of demand (eD) measures the responsiveness of the quantity demanded of a good to a change in its price. It is defined as the percentage change in quantity demanded divided by the percentage change in price: eD = (percentage change in quantity demanded) ÷ (percentage change in price) = (ΔQ/Q) × (P/ΔP). It is a pure number (negative because of the inverse price–demand relation, but we use its absolute value). If |eD| > 1 demand is elastic, if |eD| < 1 it is inelastic, and if |eD| = 1 it is unitary elastic.

22. Consider the demand for a good. At price Rs 4, the demand for the good is 25 units. Suppose price of the good increases to Rs 5, and as a result, the demand for the good falls to 20 units. Calculate the price elasticity.

ANSWER P1 = 4, Q1 = 25; P2 = 5, Q2 = 20. So ΔQ = 20 − 25 = −5 and ΔP = 5 − 4 = +1. % change in quantity = (−5 / 25) × 100 = −20%. % change in price = (1 / 4) × 100 = +25%. eD = −20% ÷ 25% = − 0.8. Since |eD| = 0.8 < 1, demand for this good is inelastic.

23. Consider the demand curve D(p) = 10 − 3p. What is the elasticity at price 5/3?

ANSWER Here a = 10, b = 3, p = 5/3. Using eD = − bp / (a − bp): bp = 3 × (5/3) = 5; a − bp = 10 − 5 = 5. eD = − 5 / 5 = − 1. At p = 5/3 the demand is unitary elastic (|eD| = 1). (Check: 5/3 is the midpoint of this demand curve, where p = a/2b = 10/6 = 5/3.)

24. Suppose the price elasticity of demand for a good is − 0.2. If there is a 5 % increase in the price of the good, by what percentage will the demand for the good go down?

ANSWER eD = % change in quantity ÷ % change in price. ⇒ % change in quantity = eD × % change in price = (− 0.2) × (+5%) = − 1%. So demand will fall by 1%.

25. Suppose the price elasticity of demand for a good is − 0.2. How will the expenditure on the good be affected if there is a 10 % increase in the price of the good?

ANSWER % change in quantity = eD × % change in price = (− 0.2) × (+10%) = − 2%. So price rises 10% while quantity falls only 2%. Expenditure E = P × Q. Approximate % change in E ≈ % change in P + % change in Q = +10% + (−2%) = +8%. Since the good is inelastic (|eD| = 0.2 < 1), expenditure moves in the same direction as price — here it rises by about 8%.

26. Suppose there was a 4 % decrease in the price of a good, and as a result, the expenditure on the good increased by 2 %. What can you say about the elasticity of demand?

ANSWER Price fell by 4% but total expenditure rose by 2% — expenditure moved in the opposite direction to price. This happens only when demand is elastic, i.e. |eD| > 1. Estimate: since E = P × Q, % change in E ≈ % change in P + % change in Q ⇒ +2% ≈ (−4%) + % change in Q, so % change in quantity ≈ +6%. eD = (+6%) ÷ (−4%) = − 1.5. Hence demand is elastic (|eD| = 1.5 > 1).

Extra Practice Questions

Short Answer Type Questions

Q1. State the Law of Diminishing Marginal Utility.

ANSWERThe Law of Diminishing Marginal Utility states that as a consumer consumes more and more units of a commodity, the marginal utility derived from each additional unit goes on falling, while the consumption of other commodities is kept constant. It explains the downward slope of the demand curve.

Q2. If TU4 = 24 units and TU5 = 24 units, find MU5 and comment.

ANSWERMU5 = TU5 − TU4 = 24 − 24 = 0. When marginal utility is zero, total utility is at its maximum and remains constant; the consumer has reached the point of satiation for that good.

Q3. State the condition for consumer’s equilibrium under the indifference-curve approach.

ANSWERThe consumer is in equilibrium where the budget line is tangent to the highest attainable indifference curve, i.e. where MRS = p1/p2 (the slope of the indifference curve equals the slope of the budget line), and the indifference curve is convex to the origin at that point.

Q4. Why is an indifference curve convex to the origin?

ANSWERAn indifference curve is convex to the origin because of the diminishing marginal rate of substitution: as the consumer gets more of good X, she is willing to sacrifice smaller and smaller amounts of good Y for each additional unit of X, so the slope flattens as we move down the curve.

Q5. Distinguish between a movement along a demand curve and a shift in the demand curve.

ANSWERA movement along the demand curve occurs when only the good’s own price changes (a change in quantity demanded). A shift of the demand curve occurs when a factor other than its own price changes — income, prices of related goods, or tastes — causing a change in demand at every price (a rightward or leftward shift).

Long Answer Type Questions

Q1. Explain how the demand curve is derived from the Law of Diminishing Marginal Utility.

ANSWERA rational consumer buys a good up to the point where its marginal utility equals its price (in money terms). Because of the Law of Diminishing Marginal Utility, each successive unit of a good yields less marginal utility, so the consumer is willing to pay less for it. Suppose at a price of Rs 40 the consumer buys 5 units of good X; the 6th unit gives lower marginal utility than the 5th, so she will buy it only if the price falls below Rs 40. To induce the consumer to buy more units, the price must fall. This inverse relationship between price and quantity demanded — more is bought only at a lower price — gives a negatively (downward) sloping demand curve. Thus the law of diminishing marginal utility explains the law of demand and the negative slope of the demand curve.

Q2. State and explain the main features (properties) of indifference curves.

ANSWER(i) Indifference curves slope downward from left to right: to get more of one good the consumer must give up some of the other to keep total utility constant. (ii) A higher indifference curve gives greater utility: as long as marginal utility is positive, bundles with more of a good lie on a higher curve and yield more satisfaction. (iii) Indifference curves are convex to the origin: the diminishing marginal rate of substitution makes the consumer sacrifice smaller amounts of good Y for each extra unit of good X. (iv) Two indifference curves never intersect: intersection would imply that a single bundle gives two different levels of utility, which is contradictory. (For perfect substitutes the curve is a straight line, since the MRS is constant.)

Q3. Explain the factors that determine the price elasticity of demand for a good.

ANSWERThe price elasticity of demand depends mainly on: (i) Nature of the good — necessities like food have inelastic demand because consumption hardly changes with price, while luxuries have elastic demand. (ii) Availability of close substitutes — if close substitutes are easily available (e.g. one variety of pulses), demand is elastic because buyers switch when price rises; if substitutes are scarce, demand is inelastic. (iii) Number of uses of a good and the proportion of income spent on it also matter — goods with many uses or those taking a large share of income tend to be more elastic. (iv) Time period — demand is usually more elastic over a longer period as consumers find alternatives. These determinants explain why elasticity differs across goods and along a demand curve.

MCQs & Assertion–Reason

1. The slope of the budget line p1x1 + p2x2 = M is:

(a) p2/p1    (b) − p1/p2    (c) M/p1    (d) − M/p2

2. Marginal utility is the:

(a) total satisfaction from all units    (b) average utility per unit    (c) change in total utility from one more unit    (d) utility at zero consumption

3. When marginal utility is zero, total utility is:

(a) zero    (b) maximum    (c) minimum    (d) negative

4. At the consumer’s optimum under the indifference-curve approach:

(a) MRS > price ratio    (b) MRS < price ratio    (c) MRS = price ratio    (d) MU = 0

5. An indifference curve is convex to the origin because of:

(a) increasing MRS    (b) diminishing marginal rate of substitution    (c) constant MRS    (d) zero marginal utility

6. A good whose demand falls when consumer’s income rises is a/an:

(a) normal good    (b) Giffen good only    (c) inferior good    (d) substitute good

7. Tea and sugar are an example of:

(a) substitutes    (b) complements    (c) inferior goods    (d) perfect substitutes

8. Market demand curve is obtained by ______ of individual demand curves.

(a) vertical summation    (b) horizontal summation    (c) multiplication    (d) subtraction

9. If a 5% rise in price causes a 10% fall in quantity demanded, demand is:

(a) inelastic    (b) unitary elastic    (c) elastic    (d) perfectly inelastic

10. At the midpoint of a straight-line demand curve, the price elasticity of demand is:

(a) 0    (b) 1    (c) greater than 1    (d) infinity

Answer key: 1-(b), 2-(c), 3-(b), 4-(c), 5-(b), 6-(c), 7-(b), 8-(b), 9-(c), 10-(b).

For each Assertion–Reason question, choose: (A) Both true and the Reason correctly explains the Assertion; (B) Both true but the Reason is not the correct explanation; (C) Assertion true, Reason false; (D) Assertion false, Reason true.

A-R 1. Assertion: The budget line is downward sloping.

Reason: To buy more of one good with a fixed income, the consumer must give up some of the other good.

A-R 2. Assertion: An increase in the consumer’s income, with prices unchanged, shifts the budget line outward in a parallel manner.

Reason: A change in income alters the slope of the budget line.

A-R 3. Assertion: Two indifference curves can never intersect each other.

Reason: Intersection would imply that the same bundle yields two different levels of utility.

A-R 4. Assertion: Demand for a necessity such as food is generally inelastic.

Reason: Consumption of necessities does not change much in response to price changes.

A-R 5. Assertion: When demand is inelastic, a rise in price increases total expenditure on the good.

Reason: For an inelastic good the percentage fall in quantity is smaller than the percentage rise in price.

Answer key: 1-(A), 2-(C), 3-(A), 4-(A), 5-(A).

Exam Tips & Common Mistakes

How to score full marks in this chapter

Memorise the four core results — budget line equation and slope (− p1/p2), the optimum condition (MRS = price ratio), the elasticity formula (ΔQ/Q × P/ΔP), and the elasticity–expenditure rule. For numericals, always write the formula, substitute values, and show each step; state the percentage changes separately for quantity and price before dividing. Remember that elasticity is negative but is reported as an absolute value, and classify the result as elastic / inelastic / unitary. For market-demand problems, watch the price ranges where a consumer’s demand becomes zero. Use neat labelled diagrams (budget line, indifference curve, demand curve) wherever asked.

Common mistakes to avoid

  • Confusing the budget line (costs exactly M) with the budget set (all affordable bundles).
  • Saying an income change alters the slope — it only shifts the budget line parallel; only a price change rotates it.
  • Forgetting that doubling both prices and income leaves the budget set unchanged.
  • Mixing up substitutes (demand moves with the related price) and complements (demand moves opposite to it).
  • Ignoring price ranges in market-demand questions — add only the consumers who are actually buying at that price.
  • Adding the percentage signs incorrectly in elasticity: eD = %ΔQ ÷ %ΔP, not ΔQ ÷ ΔP.
  • Treating an inferior good and a Giffen good as the same — every Giffen good is inferior, but not every inferior good is Giffen.

Frequently Asked Questions

What is Chapter 2 of Class 12 Economics (Introductory Microeconomics) about?

Chapter 2, Theory of Consumer Behaviour, explains how a rational consumer chooses the best bundle of goods using cardinal utility analysis (total and marginal utility, the law of diminishing marginal utility) and ordinal utility analysis (indifference curves, MRS and the budget line), and then derives the demand curve, market demand and price elasticity of demand.

What is the consumer’s equilibrium condition in this chapter?

Under the indifference-curve (ordinal) approach, the consumer is in equilibrium where the budget line is tangent to the highest attainable indifference curve, i.e. where the marginal rate of substitution equals the price ratio (MRS = p1/p2) and the indifference curve is convex to the origin.

How is price elasticity of demand calculated in Class 12 Economics Chapter 2?

Price elasticity of demand eD = percentage change in quantity demanded ÷ percentage change in price = (ΔQ/Q) × (P/ΔP). If its absolute value exceeds 1 demand is elastic, if less than 1 inelastic, and if equal to 1 unitary elastic. On a linear demand curve q = a − bp it equals − bp/(a − bp).

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