ECONOMICS (CBSE/UGC NET)

ECONOMICS

ELASTICITY OF DEMAND

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
A good is considered relatively inelastic if the elasticity of demand is ____
A
0
B
equal to 1
C
less than 1
D
greater than 1
Explanation: 

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: -An inelastic demand or inelastic supply is one in which elasticity is less than one, indicating low responsiveness to price changes. Unitary elasticities indicate proportional responsiveness of either demand or supply.

Detailed explanation-3: -Price elasticity of demand that is less than 1 is called inelastic. Demand for the product does not change significantly after a price increase. For example, a consumer either needs a can of motor oil or doesn’t need it. A price change will have little or no effect on demand.

Detailed explanation-4: -Demand is described as elastic when the computed elasticity is greater than 1, indicating a high responsiveness to changes in price. Computed elasticities that are less than 1 indicate low responsiveness to price changes and are described as inelastic demand.

Detailed explanation-5: -When the quantity of a good demanded is relatively insensitive to changes in price, the good is said to have a relatively inelastic price elasticity of demand. So, when events happen to change the price of a good, consumers’ demand for that good does not change commensurately.

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