GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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When demand curve is rectangular hyper-bola the elasticity of demand will be
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Unit elastic
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Highly elastic
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Perfectly elastic
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Perfectly inelastic
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Explanation:
Detailed explanation-1: -If the demand curve is a rectangular hyperbola, then the elasticity of demand is equal to unity at all points of the demand curve.
Detailed explanation-2: -This is because the elasticity does not depend on anything else for example for a linear demand function the elasticity would depend on price as for Q=a−P the EP=−P/(a−P) and hence as you correctly pointed out along line the elasticity constantly changes with price.
Detailed explanation-3: -The midpoint of the demand curve is unit elastic demand. It means that if the price of a good changes by a certain percentage, then the quantity demanded or supplied for those good changes by that same percentage.
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