Question

If the demand for a good is elastic with respect to its price, then a:

1) i. percentage change in price will result in a smaller percentage change in quantity demanded
2) ii. percentage change in price will result in a greater percentage change in quantity demanded
3) iii. change in price will cause revenues (or consumer expenditures) to change in the same direction
4) iv. change in price will cause revenues (or consumer expenditures) to change in the opposite direction

Answer 1

The demand for a good is elastic when the percentage change in price results in a smaller percentage change in quantity demanded.

Step-by-step explanation:

The correct answer is i. percentage change in price will result in a smaller percentage change in quantity demanded.

When the demand for a good is elastic, it means that a small change in price will lead to a relatively larger change in quantity demanded. In other words, the percentage change in quantity demanded is greater than the percentage change in price.

For example, if the price of a product decreases by 10%, the quantity demanded may increase by 20%. On the other hand, if the price increases by 10%, the quantity demanded may decrease by 20%. This indicates a relatively higher sensitivity of demand to price changes, resulting in a smaller percentage change in quantity demanded compared to the percentage change in price.