Question 44

The quantity demanded responds substantially to changes in the price.

When the demand for a good is elastic, it indicates that consumers are significantly responsive to price changes, meaning that a small change in price will lead to a large change in the quantity demanded.

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

This option is incorrect because it describes inelastic demand, where quantity demanded changes minimally with price fluctuations. Elastic demand, by contrast, entails a substantial response to price changes.

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

This statement is also incorrect for elastic demand. For elastic goods, a decrease in price leads to an increase in total revenue, while an increase in price would decrease total revenue, indicating that price and total revenue do not move in the same direction.

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

This option is misleading and incorrect as well. In the case of elastic demand, total revenue increases only when prices decrease; if prices increase, total revenue decreases. Thus, it does not hold true for both directions of price change.

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

This is the correct answer because it accurately describes elastic demand, where even a small price change results in a significant change in the quantity demanded by consumers.

Conclusion

Option D is definitively correct as it encapsulates the essence of elastic demand, where consumers are highly responsive to price changes. The other options fail to accurately reflect this relationship, either confusing it with inelastic demand or misunderstanding the dynamics between price changes and total revenue.