ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a sharp increase in the price of milk causes a large drop in the quantity demanded for milk
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the price of homes steadily increase but the quantity demanded for homes does not change
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car dealerships cut prices to clear out previous year models and consumers rush to dealerships to take advantage of the sales
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gas prices increase in the summer as more people want to go on road trips but the increases do not deter people from buying less gas
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Detailed explanation-1: -An example of products with an elastic demand is consumer durables. These are items that are purchased infrequently, like a washing machine or an automobile, and can be postponed if price rises. For example, automobile rebates have been very successful in increasing automobile sales by reducing price.
Detailed explanation-2: -Four types of elasticity are demand elasticity, income elasticity, cross elasticity, and price elasticity.
Detailed explanation-3: -b) If demand is price elastic, then decreasing price will increase revenue.
Detailed explanation-4: -If a firm lowers its price and its total revenue increases as a result, this means that the percent change in quantity demanded is greater than the percent change in the price. Because the quantity demanded is changing more than the change in price, the demand curve is elastic.