ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The good is price elastic
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The good is price inelastic
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The good is unitary elastic
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The good is perfectly price elastic
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Detailed explanation-1: -Demand for a good is relatively elastic if the PED coefficient is greater than one (in absolute value). Demand for a good is unit elastic when the PED coefficient is equal to one. PED captures the change in quantity demanded in response to a change in the good’s own price (as opposed to the price of some other good).
Detailed explanation-2: -If the price elasticity of demand is greater than 1, it is deemed elastic. That is, demand for the product is sensitive to an increase in price.
Detailed explanation-3: -Elastic demand: PED greater than 1 means the product has elastic demand. Elastic demand indicates that the product’s demand changes more than the price changes. When a product is elastic, it signals that revenue falls when you increase the price and rises when you decrease the price.
Detailed explanation-4: -What Does a Price Elasticity of 1.5 Mean? If the price elasticity is equal to 1.5, it means that the quantity of a product’s demand has increased 15% in response to a 10% reduction in price (15% / 10% = 1.5).
Detailed explanation-5: -If the formula creates an absolute value greater than 1, the demand is elastic. In other words, quantity changes faster than price. If the value is less than 1, demand is inelastic.