ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a price increase of 1% will cause a 1.5% increase in quantity demand.
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a price increase of 1% will cause a 1.5% decrease in quantity demand.
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a price increase of 1% will cause a 1.5% decrease in price.
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a price increase of 1% will cause a 1.5% increase in price.
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Detailed explanation-1: -If the elasticity of demand is 1.5, a 1% increase in the prices (factor affecting demand) will decrease the quantity demanded by 1.5%.
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 1.5x the number of goods.
Detailed explanation-3: -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-4: -If price elasticity is greater than 1, the good is elastic; if less than 1, it is inelastic. If a good’s price elasticity is 0 (no amount of price change produces a change in demand), it is perfectly inelastic.
Detailed explanation-5: -An elastic demand is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. Elasticities that are less than one indicate low responsiveness to price changes and correspond to inelastic demand.