ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If the quantity demanded of a product changes greatly in response to changes in its price, it is elastic. That is, the demand point for the product is stretched far from its prior point. If the quantity purchased shows a small change after a change in its price, it is inelastic.

Detailed explanation-2: -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-3: -If demand is elastic at a given price level, then should a company cut its price, the percentage drop in price will result in an even larger percentage increase in the quantity sold-thus raising total revenue.

Detailed explanation-4: -Elastic goods include luxury items and certain food and beverages as changes in their prices affect demand. Inelastic goods may include items such as tobacco and prescription drugs as demand often remains constant despite price changes.

Detailed explanation-5: -The price elasticity of demand varies between different pairs of points along a linear demand curve. The lower the price and the greater the quantity demanded, the lower the absolute value of the price elasticity of demand.