ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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-2.5 and the product is therefore price elastic
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-2.5 and the product is therefore price inelastic
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-0.4 and the product is therefore price elastic
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-2 and the product is therefore price elastic
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Detailed explanation-1: -The demand for the product is considered to be elastic if the price elasticity is higher than one. For, example if the price of your product increases by 2%, and sales decrease by 2.5%, the price elasticity of demand is 2.5%/2% = 1.25%.
Detailed explanation-2: -Thus, the answer is (d). A 10 percent increase in the price will cause a 5 percent decrease in the quantity demanded.
Detailed explanation-3: -2. Suppose that a 2% increase in price results in a 6% decrease in quantity demanded. Own-price elasticity of demand is equal to: a) 1/3.
Detailed explanation-4: -A price elasticity of demand of 2 means that for every 1% increase in price, the quantity demanded will fall by 2%. Thus, for a 10% increase in price, we expect the quantity demanded to fall by 20%.