Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Demand decreases significantly
B
Demand remains unchanged
C
Demand increases significantly
D
Demand decreases slightly
Understanding the Answer
Let's break down why this is correct
Answer
When the price elasticity of demand is greater than one, it means that consumers are very responsive to price changes; a small rise in price leads to a proportionally larger drop in the quantity demanded. Because the percentage decrease in quantity demanded is bigger than the percentage increase in price, the total revenue that a firm earns from that product falls. For example, if a coffee shop raises the price of a latte from $3 to $4, the demand might drop from 100 cups to 70 cups, a 30 % fall in quantity versus a 33 % price rise, showing the demand is elastic. This strong reaction forces businesses to consider lowering prices or improving value to keep customers buying.
Detailed Explanation
When the elasticity is above 1, demand is elastic. Other options are incorrect because Some think demand stays the same when prices rise; A price hike does not make people want more of the good.
Key Concepts
Price Elasticity of Demand
Consumer Behavior
Substitution Effect
Topic
Price Elasticity of Demand
Difficulty
hard level question
Cognitive Level
understand
Practice Similar Questions
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Question 3How does an increase in consumer income typically affect the demand curve for normal goods, and what is the underlying reason for this shift?
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Question 4How does the price elasticity of demand affect total revenue when the price of a product decreases?
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Question 5A company notices that when they increase the price of their product by 10%, the quantity demanded decreases by 20%. How can the company use this information regarding price elasticity of demand to make strategic pricing decisions in the future?
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Question 6If the price of oranges increases significantly, what is the most likely effect on the quantity of oranges demanded by consumers?
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Question 7If the price of a luxury car increases by 10% and the quantity demanded decreases by 15%, what does this indicate about the price elasticity of demand?
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Question 8Price elasticity of demand is to responsiveness of quantity demanded as consumer confidence is to what?
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Question 9Which of the following statements accurately describe price elasticity of demand? Select all that apply.
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