Question

1. Fill in the blanks: From the sign of the price elasticity of demand we can tell whether the goods are _____________ and from the absolute value of the price elasticity of demand we can tell whether goods are _________________________.

1. Elastic, ordinary
2. Ordinary, elastic
3. Elastic, normal
4. Normal, elastic

Answer 1

The correct answer is 'Option D'.

From the sign of the price elasticity of demand, it can be determined that whether the good is normal or not. The price elasticity of demand is negative for normal goods indicating that there exists an inverse relationship between price and quantity demanded. The absolute value of the price elasticity of demand shows whether the good is elastic or inelastic. If the absolute value of the price elasticity of demand is more than 1 then the demand is elastic. On the other hand, if the absolute value of the price elasticity of demand is less than 1 then the demand is inelastic. Therefore, the correct answer is 'Option D'.