ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The price elasticity of demand is-2
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The good is inferior
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Income elasticity is + 0.5
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Income elasticity is + 2
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Detailed explanation-1: -If the price of any commodity decreases by 20% and the demand for that commodity increases by 40% then the elasticity of demand would be highly elastic as the proportionate change of quantity demand is greater than the proportionate change of price.
Detailed explanation-2: -Example: When income increases by 5 percent, the amount demanded of Tasty Cola increases by 3 percent and the amount demanded of Crusty Cola decreases by 2 percent.
Detailed explanation-3: -Inferior goods are goods for which demand actually declines as consumers’ real incomes rise, or rises as incomes fall.
Detailed explanation-4: -Types of Income Elasticity of Demand High: A rise in income comes with bigger increases in the quantity demanded. Unitary: The rise in income is proportionate to the increase in the quantity demanded.