ECONOMICS
MARKETS AND PRICES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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rise
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stay the same
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fall by more than 6 per cent.
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fall by less than 6 per cent.
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Detailed explanation-1: -If income elasticity of demand is 0.6, then it means that for every 1% increase in income, the quantity demanded will increase by 0.6%. While own-price elasticity is usually negative, income elasticity of demand can be positive, negative, or zero.
Detailed explanation-2: -Expert Answer 18) ep =-0.6 Ep = %change in Quantity demanded /%change in Price-0.6 = %change in QTY demanded/10% % change in QTY demanded =-0.6*10% =-6% Thus QTY falls (because of the negative sign) by 6% Thus correct option is (c).
Detailed explanation-3: -2. Suppose that a 2% increase in price results in a 6% decrease in quantity demanded. Own-price elasticity of demand is equal to: a) 1/3.
Detailed explanation-4: -The correct option is c) elastic. Here, the change in quantity demanded is 6% and the change in price is 5%. Therefore, the ratio of 6/5 gives us 1.2, which indicates that the demand for the commodity is elastic.