Correct Option: A
Explanation of the Correct Answer:
Elastic demand refers to a situation in economics where the quantity demanded of a good or service changes significantly in response to a change in its price. Specifically, if the price of a commodity decreases, consumers will buy much more of it, and if the price increases, they will buy much less. This responsiveness is measured by the price elasticity of demand, which is calculated as the percentage change in quantity demanded divided by the percentage change in price.
Why Option A is Correct:
-
Greater Change in Quantity Demanded: When demand is elastic, a small decrease in price leads to a proportionally larger increase in the quantity demanded. For example, if the price of a popular fruit drops by 10%, and as a result, the quantity demanded increases by 30%, this indicates elastic demand. The formula for price elasticity of demand (PED) is:
[
\text{PED} = \frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Price}}
]
In this case, if the price change is -10% and the quantity change is +30%, the PED would be:
[
\text{PED} = \frac{30\%}{-10\%} = -3
]
Since the absolute value of PED is greater than 1, this confirms that the demand is elastic.
Why the Other Options are Incorrect:
- Option B: "of a commodity leads to little or no change in demand"
-
This describes inelastic demand, not elastic demand. Inelastic demand means that consumers are not very responsive to price changes; a significant price change results in a small change in quantity demanded. For example, if the price of a necessary medication increases, people may still buy it despite the price increase, indicating inelastic demand.
-
Option C: "leads to equal change in commodity demanded"
-
This option suggests unitary elasticity, where the percentage change in quantity demanded is equal to the percentage change in price (PED = 1). In elastic demand, the change in quantity demanded is greater than the change in price, which is not what this option states.
-
Option D: "may not change the demand of quantity of commodity"
- This option implies that price changes do not affect the quantity demanded at all, which again describes perfectly inelastic demand. In elastic demand, price changes do affect the quantity demanded significantly.
Summary of Key Points:
- Elastic Demand: A situation where quantity demanded changes significantly with price changes.
- Price Elasticity of Demand (PED): Calculated as the percentage change in quantity demanded divided by the percentage change in price.
- Correct Answer: Option A is correct because it accurately describes the nature of elastic demand.
- Inelastic Demand: Describes situations where quantity demanded changes little with price changes, which is not the case for elastic demand.
This understanding of elastic demand is crucial for making informed decisions in agricultural economics, pricing strategies, and market analysis.