Question : Statement 1: Price elasticity of demand is not applicable to perfectly elastic demand.

Statement 2: Perfectly elastic demand implies that any change in price leads to an infinitely large change in quantity demanded.

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: Statement 1 is true, and statement 2 is false.

Solution : The correct answer is (C) Statement 1 is true, and statement 2 is false.

Statement 1: Price elasticity of demand is not applicable to perfectly elastic demand. This statement is true. Perfectly elastic demand refers to a situation where even a slight change in price leads to an infinitely large change in quantity demanded. In such a case, the concept of price elasticity of demand, which measures the responsiveness of quantity demanded to changes in price, becomes irrelevant because any change in price would result in an infinite elasticity value.

Statement 2: Perfectly elastic demand implies that any change in price leads to an infinitely large change in quantity demanded. This statement is false. Perfectly elastic demand does imply that any change in price will result in an infinite percentage change in quantity demanded, but it does not imply an infinitely large change in quantity demanded. It means that consumers are extremely sensitive to price changes, and even the smallest increase in price would cause quantity demanded to drop to zero.

Therefore, statement 1 is true because price elasticity of demand is not applicable to perfectly elastic demand. However, statement 2 is false because perfectly elastic demand does not imply an infinitely large change in quantity demanded.