12. If demand is elastic A. A two percent increase in price will result in less...

12. If demand is elastic

A. A two percent increase in price will result in less than a two percent decrease in the quantity demanded

B. A two percent increase in price will result in a two percent decrease in the quantity demanded

C. A two percent increase in price will result in more than a two percent increase in the quantity demanded

D. A two percent increase in price will result in less than a two percent increase in the quantity demanded

E. None of the above is correct

Solutions

Expert Solution

Answer to the question no. 1:

Option e: None of the above is correct.

Explanation: The price elasticity of demand of a commodity is measured by using the formula: - (Percentage change in the quantity demanded) / (Percentage change in the price).

So, the demand is called price inelastic when the percentage change in the quantity demanded is higher than the percentage change in price. Or the ratio between the percentage change in quantity demanded and the percentage change in price is less than 1.

When the demand is price elastic, A two percent increase in price will result in more than a two percent decrease in the quantity demanded. This would be the correct answer. In case of the price elastic demand the quantity demanded is more responsive to a change in its price. And the value of the elasticity is greater than 1 in case of elastic demand.

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Rahul Sunny answered 3 months ago

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