ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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To calculate consumer spending based on their disposable income
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To identify changes in the spending patterns of consumers
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To calculate changes in the general price level
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To estimate the changes in a firm’s costs of production
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Detailed explanation-1: -Price elasticity of demand is used to measure the relationship between price and demand, and how changes to one will affect the other.
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: -The variation in demand in response to a variation in price is called price elasticity of demand. It may also be defined as the ratio of the percentage change in quantity demanded to the percentage change in price of particular commodity.
Detailed explanation-4: -The correct answer is option D: 2.1 The value of elasticity greater than 1 implies that demand is ‘elastic’. This means that there will be a greater change in the quantity demanded following a decrease in price. The extent of an increase in quantity demanded would not be proportional to the change in price.