ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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When expenditure on the good is a small part of total expenditure.
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When the good has few uses.
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When the good is habit-forming.
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When there are many substitutes for the good
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Detailed explanation-1: -1 Hence, the demand for goods or services with many substitutes is highly price elastic; a small increase in the price levels of goods causes consumers to buy its substitutes. For example, the demand for soda is highly price-elastic because of a large number of substitutes.
Detailed explanation-2: -If the price elasticity of demand is greater than 1, it is deemed elastic. That is, demand for the product is sensitive to an increase in price.
Detailed explanation-3: -When elasticity of demand is greater than 1, demand is elastic and seller’s revenue changes in the opposite direction. This is because as per total outlay method, total expenditure moves in the opposite direction as compared to price, since price and demand share an inverse relationship.
Detailed explanation-4: -Luxury goods represent normal goods associated with income elasticities of demand greater than one.
Detailed explanation-5: -A price elasticity supply greater than one means supply is relatively elastic, where the quantity supplied changes by a larger percentage than the price change.