ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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>1, relatively elastic
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<1, relatively inelastic
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= 1, unit elastic
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None of the above
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Detailed explanation-1: -If an increase in price causes a decrease in total revenue, then demand can be said to be elastic, since the increase in price has a large impact on quantity demanded. Different commodities may have different elasticities depending on whether people need them (necessities) or want them (accessories).
Detailed explanation-2: -when the elasticity is greater than one, indicating that a 1 percent increase in price will result in a more than 1 percent increase in quantity; this indicates a high responsiveness to price.
Detailed explanation-3: -Hence, when the price is raised, the total revenue falls, and vice versa. When the price elasticity of demand is perfectly elastic (Ed is − ∞), any increase in the price, no matter how small, will cause the quantity demanded for the good to drop to zero. Hence, when the price is raised, the total revenue falls to zero.
Detailed explanation-4: -When demand is elastic (price elasticity ), price and total revenue have a negative relationship, meaning that price rises lead to lower total revenue.