Question : The price elasticity of demand for a good is elastic if it is:
Option 1: Greater than 1.
Option 2: Less than 1.
Option 3: Equal to 1.
Option 4: Negative.
Correct Answer: Greater than 1.
Solution : The correct answer is (a) Greater than 1.
The price elasticity of demand measures the responsiveness of quantity demanded to changes in price. When the price elasticity of demand is greater than 1 (in absolute value), it indicates that the quantity demanded is highly responsive to changes in price.
Specifically, if the price elasticity of demand is elastic (greater than 1), a percentage change in price will result in a larger percentage change in quantity demanded. This means that consumers are highly sensitive to price changes, and a relatively small change in price will have a relatively large impact on the quantity demanded.
On the other hand, if the price elasticity of demand is less than 1 (but greater than 0), it is considered inelastic, indicating that quantity demanded is less responsive to changes in price. When the price elasticity of demand is equal to 1, it is considered unit elastic, meaning that the percentage change in price leads to an equal percentage change in quantity demanded.
Therefore, if the price elasticity of demand for a good is greater than 1, it is considered elastic.
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