Question : If the price elasticity of demand for a good is greater than 1, the demand is:
Option 1: Elastic.
Option 2: Inelastic.
Option 3: Unit elastic.
Option 4: Perfectly inelastic.
Correct Answer: Elastic.
Solution : The correct answer is (a) Elastic.
When the price elasticity of demand for a good is greater than 1, it indicates that the demand for the good is elastic. Elastic demand means that consumers are highly responsive to changes in price, and a percentage change in price will result in a larger percentage change in quantity demanded.
In other words, when demand is elastic, a decrease in price will lead to a proportionally larger increase in quantity demanded, and an increase in price will result in a proportionally larger decrease in quantity demanded. Consumers are sensitive to price changes, and their demand is significantly influenced by price fluctuations.
Elastic demand is represented by a relatively flat demand curve on a graph, indicating that changes in price have a substantial impact on quantity demanded.
