Multiple Choice
Which of the following best describes what happens when a nonprice determinant of supply changes?
77
views
4. Elasticity
Determinants of Price Elasticity of Demand
Multiple Choice
In microeconomics, demand can be said to be inelastic when:
A
The absolute value of the price elasticity of demand is greater than 1, .
B
The price elasticity of demand equals 1 (unit elastic), .
C
Quantity demanded changes by a larger percentage than price changes, implying relatively elastic demand.
D
The absolute value of the price elasticity of demand is less than 1, .
Verified step by step guidance1
Recall the definition of price elasticity of demand, which measures the responsiveness of quantity demanded to a change in price. It is calculated as \(\left|E_d\right| = \left|\frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}\right|\).
Understand that when \(\left|E_d\right| > 1\), demand is elastic, meaning quantity demanded changes by a larger percentage than price changes.
Recognize that when \(\left|E_d\right| = 1\), demand is unit elastic, meaning quantity demanded changes by the same percentage as price changes.
Identify that when \(\left|E_d\right| < 1\), demand is inelastic, meaning quantity demanded changes by a smaller percentage than price changes.
Therefore, to determine if demand is inelastic, check if the absolute value of the price elasticity of demand is less than 1, i.e., \(\left|E_d\right| < 1\).
Related Videos
Related Practice
