What indicates that demand is elastic?

What indicates that demand is elastic?

• A. Elasticity is equal to 1
• B. Elasticity is greater than 1
• C. Elasticity is less than 1
• D. Elasticity is zero

Answer: (B)

Demand is considered elastic when the elasticity of demand is greater than 1. This means that the quantity demanded changes by a greater percentage than the change in price. For consumers, this indicates that they are quite responsive to price changes; if the price of a product rises, they will significantly reduce their quantity demanded, and conversely, if the price drops, they will increase their quantity demanded substantially. For example, if a product's price increases by 10% and the quantity demanded falls by more than 10%, this signifies that the demand for that product is elastic. Businesses can analyze this elasticity to make informed decisions about pricing strategies and inventory management, aiming to optimize total revenue based on how consumers are likely to respond to price changes. In contrast, when elasticity is equal to 1, it refers to unitary elasticity, indicating that the percentage change in demand is exactly equal to the percentage change in price. Elasticity less than 1 indicates inelastic demand, suggesting consumers are less sensitive to price changes. Zero elasticity denotes perfectly inelastic demand, where quantity demanded remains unchanged regardless of price fluctuations.

Demand is considered elastic when the elasticity of demand is greater than 1. This means that the quantity demanded changes by a greater percentage than the change in price. For consumers, this indicates that they are quite responsive to price changes; if the price of a product rises, they will significantly reduce their quantity demanded, and conversely, if the price drops, they will increase their quantity demanded substantially.

For example, if a product's price increases by 10% and the quantity demanded falls by more than 10%, this signifies that the demand for that product is elastic. Businesses can analyze this elasticity to make informed decisions about pricing strategies and inventory management, aiming to optimize total revenue based on how consumers are likely to respond to price changes.

In contrast, when elasticity is equal to 1, it refers to unitary elasticity, indicating that the percentage change in demand is exactly equal to the percentage change in price. Elasticity less than 1 indicates inelastic demand, suggesting consumers are less sensitive to price changes. Zero elasticity denotes perfectly inelastic demand, where quantity demanded remains unchanged regardless of price fluctuations.