A commodity is said to be price inelastic if
A commodity is said to be price inelastic if
- A) Changes in the quantity purchased of a good is less than proportionate changes in its price
- B) Changes in the quantity purchased of a good is proportional to change in its price
- C) Changes in the quantity purchased of a good is more than proportionate changes in its price
- D) The quantity purchased of a good never responds to change in its price
Correct Answer: A) Changes in the quantity purchased of a good is less than proportionate changes in its price
Explanation
This Economics question is asking about what it means for a commodity to be price inelastic. The term price inelastic refers to the responsiveness of the quantity purchased of a good to changes in its price. The options given are different ways to describe this responsiveness.
Option A states that a commodity is price inelastic if changes in the quantity purchased of a good is less than proportionate changes in its price. This means that if the price of a good increases, the quantity purchased of that good will decrease by a relatively small amount. Similarly, if the price of a good decreases, the quantity purchased of that good will increase by a relatively small amount. This is the correct answer.
Option B states that a commodity is price inelastic if changes in the quantity purchased of a good is proportional to change in its price. This is actually the definition of unitary price elasticity, which is different from price inelasticity.
Option C states that a commodity is price inelastic if changes in the quantity purchased of a good is more than proportionate changes in its price. This is actually the definition of price elasticity of demand, which is the opposite of price inelasticity.
Option D states that the quantity purchased of a good never responds to change in its price. This is not correct because all goods have some level of responsiveness to price changes, even if it is very small.
It is important to understand the concept of price elasticity of demand because it affects how producers and consumers respond to changes in price. Goods that are price inelastic, like essential goods or goods with no substitutes, tend to have more stable demand and can tolerate price increases without a significant decrease in quantity purchased. On the other hand, goods that are price elastic, like luxury goods or goods with many substitutes, tend to have more volatile demand and may see a significant decrease in quantity purchased if the price increases.