ECONOMICS
DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Fall by 12%
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Fall by 5%
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Fall by 10%
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Fall by 20%
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Detailed explanation-1: -If the value is less than 1, demand is inelastic. In other words, quantity changes slower than price. If the number is equal to 1, elasticity of demand is unitary. In other words, quantity changes at the same rate as price.
Detailed explanation-2: -If price elasticity is greater than 1, the good is elastic; if less than 1, it is inelastic. If a good’s price elasticity is 0 (no amount of price change produces a change in demand), it is perfectly inelastic.
Detailed explanation-3: -So, if the price of a good increases by 10 percent and the quantity demanded decreases by only 5 percent, that good is said to have inelastic demand.
Detailed explanation-4: -Income Elasticity = Percentage change in quantity demanded / Percentage change in income. Income Elasticity =-5% / 10% =-0.5.