What does the concept of elasticity of demand measure?

Elasticity of demand measures how much the quantity demanded of a commodity responds to changes in its own price, while keeping other factors constant.

If the quantity demanded for good X increases more than for good Y when prices decrease, good X is considered to be ___ to price changes.

More responsive

True or False: Price elasticity of demand can be negative.

True, but we take the absolute value to express it positively.

Fill in the blank: The formula for calculating price elasticity of demand is EP = |ΔQ / ΔP|, where ΔQ is the change in ___ and ΔP is the change in ___.

Quantity demanded; price

What happens to the price elasticity of demand when the price of a good decreases and the quantity demanded increases?

It indicates a higher responsiveness of demand, thus suggesting that the good is elastic.

Riddle: I measure how sensitive demand is to price changes, but I am not a price tag. What am I?

Elasticity of demand

What does a higher absolute value of price elasticity of demand indicate about a product?

A higher absolute value indicates that the product is more elastic, meaning that its quantity demanded changes significantly with price changes.

What is the formula for calculating the price elasticity of demand (EP)?

EP = |(Percentage change in quantity demanded) / (Percentage change in price)|

Elastic demand is characterized by an elasticity coefficient greater than ___ and indicates that the quantity demanded is ___ responsive to price changes.

1; highly

True or False: A perfectly inelastic demand curve is represented by a horizontal line.

False; a perfectly inelastic demand curve is represented by a vertical line.

If the price of a luxury good decreases by 10% and the quantity demanded increases by more than 10%, the demand for this good is classified as ___.

Elastic

Riddle: I can change without a care, my quantity stays the same, no matter the price I declare. What am I?

Perfectly inelastic demand

What happens to quantity demanded when the price of a necessary good decreases, if the demand is inelastic?

The quantity demanded increases, but by a smaller percentage than the decrease in price.

If the price of wheat drops from 40 paisa to 20 paisa and the demand rises from 1,600 kg to 2,000 kg, what is the price elasticity of demand?

EP = 0.5, indicating inelastic demand.

Fill in the blank: If a product has a price elasticity of demand equal to infinity, it is said to have ___ demand.

Perfectly elastic

How does the concept of unit elasticity of demand manifest in real-world scenarios?

Unit elasticity occurs when a percentage change in price results in an equal percentage change in quantity demanded, such as a 10% price drop leading to a 10% increase in quantity demanded.

What is the Total Outlay (Revenue) Method used for in demand measurement?

The Total Outlay (Revenue) Method, proposed by Alfred Marshall, assesses elasticity by analyzing the relationship between total revenue (TR) and price changes, calculated as TR = P × Q.

Fill in the blank: Elastic demand occurs when a price decrease leads to a ___ in total revenue.

Increase

True or False: If the price increases and total revenue increases, demand is considered elastic.

False. If the price increases and total revenue increases, demand is considered inelastic.

What does the formula EP = dQ/dP represent in the Point Elasticity Method?

The formula EP = dQ/dP represents the elasticity of demand at a specific point on the demand curve, showing how quantity demanded changes with respect to price.

Riddle: I help you understand how much demand changes with price, but I only do it at one specific point. What am I?

Point Elasticity Method

What is the significance of using the Arc Elasticity Method?

The Arc Elasticity Method measures elasticity over a range of prices, providing an average elasticity between two points on the demand curve, which is useful for larger changes in price and quantity.

Fill in the blank: Inelastic demand is indicated when the price decreases and total revenue ___ .

Decreases

Multiple Choice: Which of the following describes Unit Elasticity?

A change in price does not affect total revenue, indicating unit elasticity.