ECONOMICS
ELASTICITY OF DEMAND
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
the product is inelastic.
|
|
|
the product is unit elastic.
|
|
|
the product is elastic.
|
|
|
the product is perfectly inelastic.
|
Detailed explanation-1: -If the change in quantity purchased is the same as the price change (say, 10% รท 10% = 1), then the product is said to have unit (or unitary) price elasticity. Finally, if the quantity purchased changes less than the price (say, -5% demanded for a +10% change in price), then the product is deemed inelastic.
Detailed explanation-2: -Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded-or supplied-divided by the percentage change in price.
Detailed explanation-3: -If the percentage change in quantity demanded is greater than the percentage change in price, demand is said to be price elastic, or very responsive to price changes.
Detailed explanation-4: -If the elasticity is equal to one, it means that the change in the quantity demanded is exactly equal to the change in price, so the demand response is exactly proportional to the change in price. We call this unitary elasticity, because unitary means one.