ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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decrease.
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increase.
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remain the same.
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None of the above
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Detailed explanation-1: -As an example, if the quantity demanded for a product increases 15% in response to a 10% reduction in price, the price elasticity of demand would be 15% / 10% = 1.5. If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or sensitive to price changes).
Detailed explanation-2: -What Does an Income Elasticity of Demand of 1.50 Mean? Since the value is positive, the good is elastic. It implies that for every 1% increase in income, people will demand an increase of 1.5% in the number of goods.
Detailed explanation-3: -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-4: -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).