ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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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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Detailed explanation-1: -The residential price elasticity of demand for water is in general inelastic because: There is no easy availability of substitutes.
Detailed explanation-2: -Demand for water is inelastic because water has no close substitutes. Water is used for everyday use. It is a necessity. The demand for necessities are inelastic when compared to luxuries.
Detailed explanation-3: -In case of perfectly inelastic demand the change in price will have no effect on the quantity demanded.
Detailed explanation-4: -The PED of a product is determined by the responsiveness of quantity demanded in relation to changes in price, and can be described as: Elastic (when elasticity of demand is less than-1; for example, -2 or even just-1.1 ): In this case, an increase in price by 1% leads to more than 1% drop in volume.