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If a 20% fall in price of a commodity brings about a 40% increase in its demand, then the demand for the commodity will be termed as:
- a)Inelastic
- b)Highly elastic
- c)Elastic
- d)Perfectly elastic.
Correct answer is option 'B'. Can you explain this answer?
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If a 20% fall in price of a commodity brings about a 40% increase in i...
If percentage change in price a of commodity is more than percentage change in quantity demanded then it is known as "ELASTIC DEMAND"
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If a 20% fall in price of a commodity brings about a 40% increase in i...
Explanation:
The given scenario suggests that there has been a 20% fall in price of a commodity, which leads to a 40% increase in its demand. Based on this, we need to determine the elasticity of demand for the commodity.
Elasticity of demand is the measure of the responsiveness of demand for a product to changes in its price. It can be classified into three categories:
1. Elastic demand: When a small change in price leads to a significant change in the quantity demanded, the demand is said to be elastic. The elasticity of demand is greater than 1 in this case.
2. Inelastic demand: When a change in price has a relatively small effect on the quantity demanded, the demand is said to be inelastic. The elasticity of demand is less than 1 in this case.
3. Unitary elastic demand: When a change in price leads to an equal percentage change in the quantity demanded, the demand is said to be unitary elastic. The elasticity of demand is equal to 1 in this case.
In the given scenario, we can calculate the elasticity of demand as follows:
Elasticity of demand = (% change in quantity demanded)/(% change in price)
Given that the price falls by 20% and the demand increases by 40%, we can calculate the elasticity of demand as:
Elasticity of demand = (40%/20%) = 2
Since the elasticity of demand is greater than 1, the demand for the commodity is highly elastic. This means that a small change in price leads to a significant change in the quantity demanded.
The given scenario suggests that there has been a 20% fall in price of a commodity, which leads to a 40% increase in its demand. Based on this, we need to determine the elasticity of demand for the commodity.
Elasticity of demand is the measure of the responsiveness of demand for a product to changes in its price. It can be classified into three categories:
1. Elastic demand: When a small change in price leads to a significant change in the quantity demanded, the demand is said to be elastic. The elasticity of demand is greater than 1 in this case.
2. Inelastic demand: When a change in price has a relatively small effect on the quantity demanded, the demand is said to be inelastic. The elasticity of demand is less than 1 in this case.
3. Unitary elastic demand: When a change in price leads to an equal percentage change in the quantity demanded, the demand is said to be unitary elastic. The elasticity of demand is equal to 1 in this case.
In the given scenario, we can calculate the elasticity of demand as follows:
Elasticity of demand = (% change in quantity demanded)/(% change in price)
Given that the price falls by 20% and the demand increases by 40%, we can calculate the elasticity of demand as:
Elasticity of demand = (40%/20%) = 2
Since the elasticity of demand is greater than 1, the demand for the commodity is highly elastic. This means that a small change in price leads to a significant change in the quantity demanded.
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If a 20% fall in price of a commodity brings about a 40% increase in i...
Well...lets solve this step by step..given :-%change in quantity demand=40%,%change in price= -20% ...the question is very direct so we just gonna apply the formula ..price elasticity of demand=%change in quantity demanded / %change in price =40/-20 =(-) 2 ...so,Ed= (-) 2 i.e demand is highly elastic bcz Ed<1...plz check the answer once ...acc to me the answer will be highly elastic ..nd syed just want to correct u that perfectly elastic must be greater than one is wrong as perfectly elastic is applied in such a case when Ed=infinity i.e infinite demand at same price nd the best part is that it is an imaginary situation..
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If a 20% fall in price of a commodity brings about a 40% increase in its demand, then the demand for the commodity will be termed as:a)Inelasticb)Highly elasticc)Elasticd)Perfectly elastic.Correct answer is option 'B'. Can you explain this answer?
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