Certified Management Accountant Practice Exam

Question: 1 / 430

When demand elasticity coefficient is greater than 1, what does it indicate?

Demand is inelastic

Demand has unitary elasticity

Demand is elastic

When the demand elasticity coefficient is greater than 1, it signifies that demand is elastic. This means that the quantity demanded changes by a larger percentage than the percentage change in price. In practical terms, if the price of a good increases, consumers will significantly reduce the quantity they purchase, and conversely, if the price decreases, consumers will increase their quantity demanded substantially.

Elastic demand often characterizes goods for which there are readily available substitutes or goods that are considered non-essential. In such cases, consumers are more responsive to price changes, reflecting their sensitivity to price fluctuations.

Understanding this concept is crucial for businesses and marketers, as it helps them to strategize pricing and anticipate consumer behavior in response to price changes.

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Demand is perfectly inelastic

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