Homework Answers
Answer : The answer is option a.
Because if % change in quantity demanded is higher than the % change in price then the price elasticity of demand become greater than 1. In this situation the elastic demand occur.
In case if inelastic demand the price elasticity of demand become less than 1. This means that in case of inelastic demand the % change in quantity demanded should be less than the % change in price. Only for necessary goods the inelastic demand occur.
For example : Let the % change in quantity demanded is 1 where the % change in price is 0.5. Now,
Price elasticity of demand = % change in quantity demanded / % change in price = 1 / 0.5 = 2.
Here price elasticity of demand = 2 > 1. This means that here the demand is elastic.
Therefore, option a is correct.
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