ECONOMICS
ELASTICITY OF DEMAND
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
if demand for the good is income-elastic
|
|
|
if demand for the good is price-inelastic
|
|
|
if the price of a complementary good also increases
|
|
|
if the price of substitute goods also increases
|
Detailed explanation-1: -If the demand for a good is inelastic, an increase in its price will cause the total expenditure of the consumers of the good to .
Detailed explanation-2: -If the percent change in the quantity demanded is less than the percent change in consumer expenditure, the demand is said to be expenditure inelastic, or not responsive to changes in consumer expenditure.
Detailed explanation-3: -On the other hand, if the price for an inelastic good is increased and the demand does not change, the total revenue increases due to the higher price and static quantity demanded. However, price increases typically do lead to a small decrease in quantity demanded.
Detailed explanation-4: -In case of inelastic Demand, when the price is increased, it will cause the total expenditure of the consumer to increase because total expenditure = quantity demanded × price. The demand will not change but the change in price cause consumer’s total expenditure to increase.