Question

Tom and Jerry both arrive at a petrol pump. Without worrying about price, Tom says, “I want 10 liters of petrol.” Also, without worrying about price, Jerry says, “I want petrol worth 1000 rupees.” The own price elasticities of demand for Tom (denoted by \( \varepsilon_T \)) and Jerry (denoted by \( \varepsilon_J \)) are:

• A. \( \varepsilon_T = 0, \varepsilon_J = -\infty \)
• B. \( \varepsilon_T = 0, \varepsilon_J = -1 \)
• C. \( \varepsilon_T = -\infty, \varepsilon_J = 0 \)
• D. \( \varepsilon_T = -1, \varepsilon_J = 0 \)

Hint:

When price elasticity is zero, quantity demanded is fixed regardless of price changes. When demand is based on expenditure, elasticity is typically negative and can be unitary.

Answer 1

The Correct Option is B

Step 1: Understand the Price Elasticity of Demand.
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. If a person buys a fixed quantity, like Tom with his 10 liters of petrol, their price elasticity is zero (\( \varepsilon_T = 0 \)) as quantity demanded is not influenced by price.
Step 2: Jerry’s Situation.
Jerry’s demand depends on the expenditure, not the quantity. The price elasticity in this case is negative (\( \varepsilon_J = -1 \)) because a fixed expenditure leads to a unitary elasticity where a 1% change in price causes a 1% change in quantity demanded.
Thus, the correct answer is (B).