Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A product with high price elasticity will see a large change in quantity demanded when the price changes.
B
Income elasticity of demand only applies to normal goods and not to inferior goods.
C
Cross-price elasticity of demand is positive for substitute goods and negative for complementary goods.
D
Lowering the price of a product with elastic demand will always increase total revenue.
E
Price elasticity of demand is always greater than one for luxury goods.
Understanding the Answer
Let's break down why this is correct
Answer
Elasticity in economics measures how much one thing responds to changes in another. For example, if the price of a product goes up, elasticity helps us understand how much the quantity sold will drop. If a small price increase leads to a big drop in sales, we say that demand is elastic. Conversely, if sales don't change much when the price goes up, demand is inelastic. Understanding these concepts helps businesses and policymakers make better decisions about pricing and supply.
Detailed Explanation
Other options are incorrect because Some think high price elasticity means no change in demand; This suggests income elasticity only affects normal goods.
Key Concepts
Elasticity of Demand
Consumer Behavior
Revenue Changes
Topic
Elasticity Formulas and Relationships
Difficulty
medium level question
Cognitive Level
understand
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