ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Question 5A cut in price of Product A from RM1.50 to RM1.20 sees demand for a product rise by 10%. What would the price elasticity of demand be for this product?
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3.00
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1.00
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2.00
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-0.50
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Explanation:
Detailed explanation-1: -Thus, the answer is (d). A 10 percent increase in the price will cause a 5 percent decrease in the quantity demanded.
Detailed explanation-2: -If the elasticity of supply is 0.5, then a 10% decrease in price will result in a 5% increase in quantity supplied.
Detailed explanation-3: -The price elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price.
Detailed explanation-4: -Inelastic demand occurs when changes in price cause a disproportionately small change in quantity demanded. For example, a good with inelastic demand might see its price increase by 30%, but demand falls by only 10% as a result.
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