Question 6

The quantity demanded responds substantially to changes in the price.

When the demand for a good is elastic, it indicates that consumers are sensitive to price changes. Therefore, a small change in price leads to a significant change in the quantity demanded of that good.

A) The quantity demanded responds only slightly to changes in the price.

This option is incorrect because it describes inelastic demand rather than elastic demand. When demand is inelastic, quantity demanded does not significantly change in response to price fluctuations.

B) The quantity demanded responds substantially to changes in the price.

This statement is correct as it accurately reflects the nature of elastic demand. With elastic demand, even a small increase or decrease in price can lead to a large change in the quantity demanded, demonstrating high sensitivity to price changes.

C) Total revenue increases with a change in price in either direction.

This option is incorrect as it misrepresents the relationship between price changes and total revenue for elastic goods. When demand is elastic, lowering the price increases total revenue, while raising the price decreases total revenue.

D) Price and total revenue move in the same direction.

This statement is also incorrect for elastic demand. In cases of elastic demand, price and total revenue move in opposite directions; an increase in price results in a decrease in total revenue, and vice versa.

Conclusion

The correct answer, B, clearly illustrates the fundamental principle of elastic demand where quantity demanded is highly responsive to price changes. In contrast, options A, C, and D misinterpret the characteristics of elastic demand, underscoring the importance of understanding how demand elasticity affects consumer behavior and total revenue.