Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Demand is elastic, meaning quantity demanded changes significantly with price changes.
B
Demand is inelastic, meaning quantity demanded changes little with price changes.
C
Demand is unit elastic, meaning quantity demanded changes proportionately with price changes.
D
Demand is perfectly elastic, meaning quantity demanded is infinite at a specific price.
Understanding the Answer
Let's break down why this is correct
Answer
If the price elasticity of demand for a good is greater than 1, it means that the demand for that good is elastic. This indicates that when the price of the good changes, the quantity demanded changes by a larger percentage. For example, if the price of a popular toy increases by 10% and the quantity demanded decreases by 20%, the price elasticity of demand is 2, which is greater than 1. This shows that consumers are quite responsive to price changes; they may find alternatives or decide not to buy the product as much if the price goes up. Therefore, businesses need to be careful when raising prices because it can lead to a significant drop in sales.
Detailed Explanation
When demand is elastic, it means that people buy a lot less if the price goes up. Other options are incorrect because This option suggests that demand doesn't change much with price; Unit elastic means demand changes exactly with price changes.
Key Concepts
price elasticity of demand
Topic
Elasticity and Tax Incidence
Difficulty
easy level question
Cognitive Level
understand
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