ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a change in the price causes a small change in quantity demanded
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a change in the price causes a large change in quantity demanded
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a change in the price causes no change in quantity demanded
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a change in quantity demanded causes a large change in the price
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Detailed explanation-1: -Relatively elastic demand is when the proportionate change in demand is more than the proportionate change in the price. In other words, this means that a little change in the price shall cause more change in demand. Thus, the demand curve slopes downward from left to right. An example of this is luxury goods.
Detailed explanation-2: -Demand is inelastic when a change in price causes a relatively smaller change in quantity demanded. Demand is unit elastic when a change in price causes a proportional change in quantity demanded. To measure the elasticity of demand, compare the percentage change in quantity demanded to the percentage change in price.
Detailed explanation-3: -As a rule of thumb, if the quantity of a product demanded or purchased changes more than the price changes, then the product is considered to be elastic (for example, the price goes up by 5%, but the demand falls by 10%).
Detailed explanation-4: -If the absolute value of elasticity is more than 1, the demand is called elastic. In other words, if a given change in price leads to a relatively larger change in quantity demanded, the demand is called elastic.