ECONOMICS (CBSE/UGC NET)

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ECONOMICS

ELASTICITY OF DEMAND

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
A 2% price cut for doodads causes gizmo sales to fall by 3%. The price cross elasticity of demand between these goods is roughly ____ and these goods are ____
A
‑2/3, substitutes.
B
1.5, substitutes.
C
2/3, complements.
D
‑1.5, complements.
Explanation: 

Detailed explanation-1: -If a 2% price rise results in a 4% decrease in quantity demanded, then (c) demand is elastic, and its total revenue decreases. When a product experiences a drastic change in the demand with a minimal price change, the demand for the product is said to be elastic.

Detailed explanation-2: -2. Suppose that a 2% increase in price results in a 6% decrease in quantity demanded. Own-price elasticity of demand is equal to: a) 1/3.

Detailed explanation-3: -If the percentage change in quantity demanded is greater than the percentage change in price, demand is said to be price elastic, or very responsive to price changes.

Detailed explanation-4: -If the cross elasticity of demand between chicken chop and lamb chop is 2.5, then a 6% increase in the price of chicken chop will result in. a 10% increases in the quantity demanded of lamb chop.

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