Question

If, for a given percentage increase in price, quantity demanded falls by a proportionately larger percentage, then demand is relatively price elastic. relatively price inelastic. unit price elastic. perfectly price elastic OOOO

Answer 1

Answer

The correct answer is (a) relatively price elastic.

A demand is relatively price elastic If quantity changes by proportionately larger percentage then Percentage change in price. Here quantity demand falls by proportionately larger percentage than percentage increase in price. Hence, using above definition of relative price elastic we get that this demand relatively price elastic. Hence option (a) is a correct answer

A demand is relatively price inelastic If quantity changes by proportionately lesser percentage then Percentage change in price. Here quantity demand falls by proportionately larger percentage than percentage increase in price. Hence it is not relatively price inelastic. hence option (b) is incorrect.

A demand is unitary price elastic If quantity changes by equal percentage as Percentage change in price. Here quantity demand falls by proportionately larger percentage than percentage increase in price. Hence it is not unitary price elastic. Hence option (c) is incorrect.

A demand is perfectly price elastic when change in quantity does not affect price level i.e. % change in price = 0. Here price increase, thus % change in price is not equal to 0 and hence demand is not perfectly price elastic. Hence option (d) is also incorrect.

Hence, the correct answer is (a) relatively price elastic.