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Question & Answer
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A 10% increase in the price of bread leads to a 10% decrease in quantity demanded.
A 20% increase in the price of a luxury car results in a 5% decrease in quantity demanded.
A 15% increase in the price of bottled water results in a 20% decrease in quantity demanded.
A 5% increase in the price of movie tickets leads to a 5% increase in quantity demanded.
Understanding the Answer
Let's break down why this is correct
When the price of a necessity rises by 10 percent, the quantity demanded falls by the same 10 percent. Other options are incorrect because The scenario shows a 20 percent price hike but only a 5 percent drop in demand, which means the elasticity is less than one; A 15 percent price rise causing a 20 percent drop means the elasticity is greater than one, which is elastic, not unitary.
Key Concepts
Price Elasticity of Demand
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Deep Dive: Price Elasticity of Demand
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Definition
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. It quantifies how much the quantity demanded will change in percentage terms in response to a one percent change in price. Elasticity values help determine the sensitivity of demand to price fluctuations.
Topic Definition
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. It quantifies how much the quantity demanded will change in percentage terms in response to a one percent change in price. Elasticity values help determine the sensitivity of demand to price fluctuations.
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