Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Price elasticity of demand is always negative due to the inverse relationship between price and quantity demanded.
B
Goods with high price elasticity tend to have fewer substitutes available.
C
A price elasticity value greater than 1 indicates that demand is elastic.
D
Necessities typically have a lower price elasticity than luxury goods.
E
Price elasticity of demand can only be calculated for goods with a linear demand curve.
Understanding the Answer
Let's break down why this is correct
Answer
Price elasticity of demand measures how much the quantity demanded of a good changes when its price changes. If a small price change causes a large change in quantity, the demand is elastic; if quantity hardly changes, it is inelastic. The elasticity value is negative because price and quantity move in opposite directions, but we usually report the absolute value. For example, if the price of coffee rises by 10 % and the quantity demanded falls by 20 %, the elasticity is 2, indicating elastic demand. This concept helps firms decide pricing and forecast revenue changes.
Detailed Explanation
Elasticity is a negative number because price and quantity demanded move in opposite directions. Other options are incorrect because People think high elasticity means fewer substitutes, but actually many substitutes make demand more responsive; Elasticity can be calculated for any demand curve, not just linear ones.
Key Concepts
Price Elasticity of Demand
Demand Sensitivity
Substitute Goods
Topic
Price Elasticity of Demand
Difficulty
medium level question
Cognitive Level
understand
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