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.   In the case of unitary elastic demand, total revenue remains unchanged with price changes.   Perfectly elastic demand implies that consumers will buy an infinite quantity at a particular price but none at any other price.   Which of the statements given above are correct?  
    A 1 and 2 only Correct Answer Incorrect Answer
    B 2 and 3 only Correct Answer Incorrect Answer
    C 1 and 3 only Correct Answer Incorrect Answer
    D 1, 2, and 3 Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Explanation:  

    • Statement 1 is incorrect: If price elasticity of demand is greater than 1 , the demand is considered elastic , not inelastic.  
    • Statement 2 is correct: When demand is unitary elastic (elasticity = 1) , total revenue remains unchanged despite price changes.  
    • 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.  

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