Question : Assertion: Elasticity of demand provides valuable information for businesses in pricing decisions.
Reason: Elasticity of demand helps determine how changes in price will impact quantity demanded and total revenue.
Option 1: Both the assertion and reason are correct and related.
Option 2: Both the assertion and reason are correct but not related.
Option 3: The assertion is correct, but the reason is incorrect.
Option 4: The assertion is incorrect, but the reason is correct.
Correct Answer: Both the assertion and reason are correct and related.
Solution : The correct answer is (A) Both the assertion and reason are correct and related.
The assertion states that elasticity of demand provides valuable information for businesses in pricing decisions. This is correct. Elasticity of demand measures the responsiveness of quantity demanded to changes in price. It helps businesses understand how sensitive consumers are to price changes and provides valuable insights into demand behavior. By knowing the elasticity of demand for their products, businesses can make informed pricing decisions to maximize their revenue and profitability.
The reason provided states that elasticity of demand helps determine how changes in price will impact quantity demanded and total revenue. This reason supports the assertion. Elasticity of demand provides information about the percentage change in quantity demanded in response to a percentage change in price. By understanding the magnitude of the elasticity, businesses can estimate the impact of price changes on quantity demanded. For example, if demand is elastic, a decrease in price will result in a more than proportionate increase in quantity demanded, leading to higher total revenue. Conversely, if demand is inelastic, a price decrease may lead to a less than proportionate increase in quantity demanded, resulting in lower total revenue. This information is crucial for businesses to make effective pricing decisions.
Therefore, both the assertion and reason are correct and related. Elasticity of demand does provide valuable information for businesses in pricing decisions, as stated in the assertion, and the reason explains how it helps determine the impact of price changes on quantity demanded and total revenue.
Question : Assertion: Elasticity of demand measures the responsiveness of quantity demanded to changes in price.
Reason: Elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price.
Question : Assertion: The concept of elasticity of demand is only applicable to individual consumers.
Reason: Elasticity of demand measures the responsiveness of quantity demanded to changes in price.
Question : Assertion: When the price of a product increases by 10%, and the quantity demanded decreases by 20%, the price elasticity of demand is 0.5.
Reason: Price elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price.
Question : Assertion: When the price of a product increases by 10% and its quantity demanded decreases by 10%, the price elasticity of demand is -1.
Question : Assertion: Price elasticity of demand measures the percentage change in quantity demanded given a one percent change in price.
Reason: Price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
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