ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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There are many substitutes for this good.
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The good is a necessity.
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The market for the good is narrowly defined.
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The relevant time horizon is long.
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Detailed explanation-1: -The market for the good is narrowly defined. For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? The relevant time horizon is long.
Detailed explanation-2: -Answer and Explanation: The correct answer is c. The income elasticity is 0.4 and the good is a normal good. The good is a normal good because demand rises as income rises.
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: -The demand for a good is inelastic if the percentage decrease in the quantity demanded is less than the percentage increase in its price. In this example, a 10 percent price rise brings a 2 percent decrease in the quantity demanded, so demand is inelastic.
Detailed explanation-5: -Answer and Explanation: The correct option is b.-2. Thus, it can be stated that the elasticity of demand is-2.