ECONOMICS (CBSE/UGC NET)

ECONOMICS

ELASTICITY OF DEMAND

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

When the price of fuzzy blankets decreased by 10%, Mr. Fields bought 20% more fuzzy blankets.What is Mr. Fields’ price elasticity of demand for blankets?

A	Unit elastic
B	Elastic
C	Inelastic
D	Perfectly Inelastic
E	Perfectly Elastic

Explanation:

Detailed explanation-1: -When demand is unit elastic, a 10 percent change in the price of the good will cause a change in quantity demanded equal to 10 percent. Unit elastic is condition when price elasticity of demand is 1. The % change in price will cause similar % change in quantity demanded.

Detailed explanation-2: -The price elasticity is unitary elastic equal to 1, which means the percentage change in demand will be the same as a percentage change in price. Hence, a 10% decrease in demand will occur with a 10% increase in price.

Detailed explanation-3: -The correct option is: b. is larger than 10 percent. The demand is said to be elastic when the percentage change in demand is more than the percentage change in the price. Therefore, in the given case the percentage change in demand has to be more than 10%.

Detailed explanation-4: -The price elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price.

There is 1 question to complete.