Question

When is the demand for a good said to be inelastic?

• A. When the percentage change in quantity demanded is greater than the percentage change in market price
• B. When the percentage change in quantity demanded is equal to the percentage change in market price
• C. When the percentage change in quantity demanded is less than the percentage change in market price
• D. When the good is a luxury item
• A. Inelastic
• B. Unitary-elastic
• C. Elastic
• D. Perfectly elastic
• A. Elastic
• B. Inelastic
• C. Unitary-elastic
• D. Perfectly elastic
• A. Luxury goods
• B. Essential goods
• C. Durable goods
• D. Non-essential goods
• A. Perfectly inelastic demand
• B. Unitary-elastic demand
• C. Perfectly elastic demand
• D. Inelastic demand

Answer 1

The Correct Option is C

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price.
When the percentage change in quantity demanded is less than the percentage change in market price, the demand is said to be inelastic. This means that consumers do not significantly reduce their quantity demanded when the price increases.
For a good to be inelastic, its price elasticity of demand (\(e_p\)) must be less than 1. This indicates that the quantity demanded does not change proportionately as much as the price change.

Answer 2

Luxury goods typically have elastic demand, meaning their quantity demanded is highly responsive to changes in price.
This happens because consumers of luxury items are more likely to change their purchasing behavior when the price changes. A small increase in price may lead to a large reduction in quantity demanded for luxury goods.
On the other hand, necessities and essential goods tend to have inelastic demand, as consumers are less likely to reduce their consumption even when prices rise.

Answer 3

The price elasticity of demand (\(e_d\)) quantifies how sensitive the quantity demanded is to price changes.
When \(e_d = 0.5\), the demand is considered inelastic, meaning the percentage change in quantity demanded is less than the percentage change in price.
This indicates that consumers are relatively unresponsive to price changes. In other words, a price increase or decrease does not result in a proportionate change in quantity demanded.
The threshold for inelastic demand is \(e_d<1\), and in this case, since \(e_d = 0.5\), it confirms that the demand is inelastic.

Answer 4

Inelastic demand refers to goods for which the quantity demanded is not significantly responsive to price changes.
Essential goods are typically inelastic because consumers need them, regardless of price changes. Even if the price increases, the demand for these goods does not decrease significantly.
On the other hand, luxury goods tend to have elastic demand since consumers can forgo them if prices rise. Durable goods may have varying elasticity depending on their necessity, and non-essential goods tend to have elastic demand.

Answer 5

When the price elasticity of demand (\(e_D\)) is equal to one, it indicates unitary-elastic demand. This means that the percentage change in quantity demanded is exactly equal to the percentage change in price.
In other words, for every 1% change in price, the quantity demanded changes by 1% in the opposite direction. This results in no change in total revenue.
If the demand is perfectly inelastic (\(e_D = 0\)), there is no change in quantity demanded regardless of price changes. If demand is perfectly elastic (\(e_D = \infty\)), the quantity demanded changes infinitely with any price change.