Question
Consider the following statements regarding the concept
of elasticity of demand: If the price elasticity of demand is greater than 1, the demand is considered inelastic. Â In the case of unitary elastic demand, total revenue remains unchanged with price changes. Â Perfectly elastic demand implies that consumers will buy an infinite quantity at a particular price but none at any other price. Â Which of the statements given above are correct? ÂSolution
Explanation: Â
- Statement 1 is incorrect: If price elasticity of demand is greater than 1 , the demand is considered elastic , not inelastic. Â
- Statement 2 is correct: When demand is unitary elastic (elasticity = 1) , total revenue remains unchanged despite price changes. Â
- Statement 3 is correct: A perfectly elastic demand curve means that at a particular price, demand is infinite , but if the price changes, demand falls to zero. Â
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