Question : Statement 1: If the price elasticity of demand for a product is -1.5, a 10% increase in price will result in a 15% decrease in quantity demanded.
Statement 2: The absolute value of the price elasticity of demand represents the percentage change in quantity demanded for a 1% change in price.
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 indeed (A) Both statements are true.
Statement 1: If the price elasticity of demand for a product is -1.5, a 10% increase in price will result in a 15% decrease in quantity demanded.
This statement is true. The price elasticity of demand is a measure of the responsiveness of quantity demanded to changes in price. A price elasticity of demand of -1.5 indicates that a 1% increase in price will lead to a 1.5% decrease in quantity demanded. Therefore, a 10% increase in price would result in a 15% decrease in quantity demanded (10% multiplied by 1.5).
This statement is also true. The absolute value of the price elasticity of demand represents the percentage change in quantity demanded for a 1% change in price. It is a measure of the responsiveness of quantity demanded to price changes, regardless of whether the price is increasing or decreasing. Taking the absolute value of the price elasticity allows us to focus on the magnitude of the responsiveness without regard to the direction of the price change.
Therefore, both statements are true.
Question : Statement 1: Elasticity of demand measures the sensitivity of quantity demanded to changes in price.
Statement 2: If the percentage change in price is greater than the percentage change in quantity demanded, demand is considered elastic.
Question : Statement 1: The price elasticity of demand for a product is zero when quantity demanded does not change with a change in price.
Statement 2: Zero price elasticity indicates a vertical demand curve.
Question : Statement 1: When the price of a product increases by 10%, and its quantity demanded decreases by 5%, the price elasticity of demand is - 0.5.
Statement 2: The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price.
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 concept of price elasticity of demand measures the responsiveness of quantity demanded to changes in income.
Statement 2: Price elasticity of demand can be calculated by dividing the percentage change in quantity demanded by the percentage change in price.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statement 1 and statement 2 are true.
Option 4: Both statement 1 and statement 2 are false.
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