ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -An elastic demand is one in which the change in quantity demanded due to a change in price is large. An inelastic demand is one in which the change in quantity demanded due to a change in price is small. If the formula creates an absolute value greater than 1, the demand is elastic.

Detailed explanation-2: -Price elasticity of demand is a measurement of the change in consumption of a product in relation to a change in its price. A good is perfectly elastic if the price elasticity is infinite (if demand changes substantially even with minimal price change).

Detailed explanation-3: -The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. If the quotient is greater than or equal to one, the demand is considered to be elastic. If the value is less than one, demand is considered inelastic.

Detailed explanation-4: -That implies that total revenue will move in the direction of the price change: an increase in price will increase total revenue, and a reduction in price will reduce it. Demand is unit price elastic, and total revenue remains unchanged. Quantity demanded falls by the same percentage by which price increases.

Detailed explanation-5: -If demand is elastic, the quantity demanded is very sensitive to price, e.g. when a 1% rise in price generates a 10% decrease in quantity. If demand is inelastic, the good’s demand is relatively insensitive to price, with quantity changing less than price.