Discussion
If price of any commodity decreases by 20% and the demand for that commodity increases by 40%, then elasticity of demand would be
Answer: D
Elasticity of demand is highly elastic. Price elasticity is the percentage change in quantity demanded divided by the percentage change in price.
\[ e_d = \frac{40\%}{20\%} = 2 \]A value greater than 1 means demand is elastic, and a value as large as 2 is described as highly elastic here. It is not perfectly elastic, which means infinite elasticity, nor perfectly inelastic, which is zero, nor unit elastic, which would need a 20 per cent rise in quantity for a 20 per cent fall in price.
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