ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Water has seen an increase in demand 8% this summer, while the price has decreased 12%. The PED is:
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1.5 inelastic
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1.5 elastic
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.67 inelastic
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.67 elastic
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Explanation:
Detailed explanation-1: -Price elasticity estimates for water across the United States generally are observed as inelastic.
Detailed explanation-2: -The residential price elasticity of demand for water is in general inelastic because: There is no easy availability of substitutes.
Detailed explanation-3: -In case of perfectly inelastic demand the change in price will have no effect on the quantity demanded.
Detailed explanation-4: -If demand is inelastic, a decrease in price will cause total revenue to fall. If demand is elastic, an increase in price will cause total revenue to fall. If demand is elastic, a decrease in price will cause total revenue to rise.
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