Which of the Following Statements About Price Elasticity of Demand

question 276

Multiple Choice

Which of the following statements about price elasticity of demand is most accurate?

• A) Price elasticity with inelastic demand is less than 1.
• B) The more substitutes a product has, the less likely it is to be price elastic.
• C) Unitary demand represents the relationship between the cash outlay necessary to purchase a product relative to a person's disposable income.
• D) With inelastic demand, reducing price will result in an increase of total revenue.
• E) With inelastic demand, reducing price will result in an increase in total revenue, although not necessarily an increase in profit.

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Definitions:

Relative Purchasing Power Parity

An economic theory that states the rate of exchange between two currencies will adjust to reflect changes in the price levels of the two countries.

Absolute Exchange Rate

An exchange rate that directly compares the purchasing power of two different currencies.

Inflation Rates

The rate at which the general level of prices for goods and services is rising, concurrently eroding purchasing power, usually expressed as a percentage.

Premium

An amount paid in excess of the regular price, often associated with insurance costs or the additional cost to buy an asset.