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In which of the following, the demand for a good will be highly price elastic? |
When the price of the good and total expenditure on it change in the same direction. When the price of the good and total expenditure on it change in the opposite direction. When the price of the good and does not affect the total expenditure. When the income of the consumer and total expenditure on it change in the same direction. |
When the price of the good and total expenditure on it change in the opposite direction. |
The correct answer is Option (2) → When the price of the good and total expenditure on it change in the opposite direction. When the demand for a good is highly price elastic, even a small change in price causes a large change in quantity demanded. As a result, if the price falls, the quantity demanded rises proportionately more, leading to an increase in total expenditure — meaning price and total expenditure move in opposite directions. Hence, when price and total expenditure change in opposite directions, demand is said to be highly (elastic) price elastic. |
