Question : Statement 1: If the price of a good increases, and its total revenue decreases, demand for that good is elastic.
Statement 2: Elastic demand implies that an increase in price leads to a proportionately larger decrease in quantity demanded, resulting in lower total revenue.
Option 1: Both statements are true.
Option 2: Both statements are false.
Option 3: Statement 1 is true, and statement 2 is false.
Option 4: Statement 1 is false, and statement 2 is true.
Correct Answer: Both statements are true.
Solution : The correct answer is (A) Both statements are true.
Statement 1: If the price of a good increases, and its total revenue decreases, demand for that good is elastic.
This statement is true. Elastic demand means that the quantity demanded is highly responsive to changes in price. If an increase in price leads to a decrease in total revenue, it indicates that the quantity demanded has decreased significantly, suggesting elastic demand.
This statement is also true. Elastic demand implies that a change in price results in a proportionately larger change in quantity demanded in the opposite direction. If the price increases, and the demand is elastic, the decrease in quantity demanded will be proportionately larger than the increase in price, leading to lower total revenue.
Question : Statement 1: Demand for a product is perfectly elastic when quantity demanded becomes infinite at a specific price.
Statement 2: Perfectly elastic demand implies that any increase in price will cause quantity demanded to drop to zero.
Question : Statement 1: Price elasticity of demand is not applicable to perfectly elastic demand.
Statement 2: Perfectly elastic demand implies that any change in price leads to an infinitely large change in quantity demanded.
Question : Statement 1: If the price elasticity of demand for a product is -0.2, demand is considered inelastic.
Statement 2: Inelastic demand implies that a change in price leads to a proportionately smaller change in quantity demanded.
Question : Statement 1: The demand for a product is perfectly inelastic when quantity demanded remains constant regardless of price changes.
Statement 2: Perfectly inelastic demand implies that any change in price will cause an infinite change in quantity demanded.
Question : Statement 1: Price elasticity of demand can have a value of zero for a perfectly inelastic demand curve.
Statement 2: Perfectly inelastic demand implies that quantity demanded does not change regardless of price changes.
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