Question

Which of the following is true of price elasticity of demand?

a. The elasticity of demand is inversely proportional to the number of competitors offering a particular product.

b. Price elasticity tends to be greater in countries with low income levels.

c. Demand is said to be elastic is only defined by the competitive conditions in a country.

d. The price elasticity of demand is only defined by the competitive conditions in a country.

e. Demand is said to be inelastic when a large change in price produces a larger change in demand.

Answer 1

a) False: It is directly proportional. The more the number of competitors, higher is the elasticity of demand.

b) True: Price elasticity tends to be greater in countries with low income levels because their marginal utility of money is much greater than that of rich countries which means they value money a lot more. So prices affect poor countries much more than rich countries.

c and d) False: Price elasticity of demand is not just defined by the competitive conditions in a country but that of the whole world.

e) False: Demand is said to be inelastic when a large change in price produces a smaller change in demand.