Question

\[ \mathbf{e_d = 0} \] means the demand for the good is

• A. perfectly elastic
• B. perfectly inelastic
• C. less elastic
• D. unit elastic

Hint:

When e$_{d}$ = 0, the demand is perfectly inelastic, meaning price changes do not affect the quantity demanded at all.

Answer 1

The Correct Option is B

Step 1: Understanding Price Elasticity of Demand:
Price elasticity of demand (e$_{d}$) is a measure of how much the quantity demanded of a good responds to changes in its price. The formula for elasticity of demand is: \[ e_d = \frac{\%\ \text{Change in Quantity Demanded}}{\%\ \text{Change in Price}} \] The value of e$_{d}$ determines the type of demand curve a good has. If e$_{d}$ is 0, it indicates that the quantity demanded does not change at all regardless of price changes, meaning demand is perfectly inelastic.
Step 2: Interpreting e$_{d}$ = 0:
When e$_{d}$ = 0, the demand curve is vertical. No matter how much the price increases or decreases, the quantity demanded remains constant. This typically occurs with essential goods or necessities for which consumers have no substitute and will buy the same amount regardless of price changes.
Step 3: Real-Life Example:
A common example of perfectly inelastic demand is insulin for diabetics. No matter how much the price of insulin rises, individuals with diabetes will still need to purchase the same amount to manage their condition.
Step 4: Conclusion and Answer:
The correct answer is (B) because when e$_{d}$ = 0, the demand for the good is perfectly inelastic, meaning the quantity demanded does not respond to price changes.