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If a small change in price produces a much larger proportionate change in demand, the demand is:
APerfectly inelastic (Ep = 0)
BRelatively elastic (Ep > 1) — typical of luxury goods
CUnitary elastic (Ep = 1)
DRelatively inelastic (Ep < 1)
Answer & Solution
Correct answer: B. Relatively elastic (Ep > 1) — typical of luxury goods
1. A larger proportionate change in demand than in price means Ep > 1.
2. This is relatively elastic demand.
3. Luxury goods are given as a typical example.
_Source: ICMAI BoS CMA Foundation Paper 4 (Business Economics & Management), Module 1 §1.3 (Theory of Demand) + §Elasticity of Demand, p. 33-46_
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