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Solution
The correct option is C Both 1 and 2
Explanation:
Perfectly elastic demand
- Perfectly elastic demand is said to happen when a little change in price leads to an infinite change in quantity demanded.
- A small rise in price on the part of the seller reduces the demand to zero.
- In such a case the shape of the demand curve will be a horizontal straight line.
Perfectly Inelastic demand:
- Perfectly inelastic demand is the opposite of perfectly elastic demand.
- Any rise or fall in the price of a commodity, the quantity demanded remains the same.
- The elasticity of demand in this case will be equal to zero.
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When the percentage decrease in the price of a good is greater than the percentage increase in its quantity demanded, the elasticity of demand for it is more than 1.
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When the percentage increase in the price of a good is greater than the percentage decrease in its quantity demanded, the elasticity of demand for it is less than 1.
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When the percentage decrease in the price of a good is greater than the percentage increase in its quantity demanded, the elasticity of demand for it is less than 1.
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When the percentage decrease in the price of a good is the same as the percentage increase in its quantity demanded, the elasticity of demand for it is equal to 1.
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Solution
The correct option is B
When the percentage increase in the price of a good is greater than the percentage decrease in its quantity demanded, the elasticity of demand for it is less than 1.
eD=% changein q% changein p
You can see that option B is incorrect.
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