Question

When the price of a good falls from Rs 30 to Rs 25, the consumer continues to purchase the same quantity of the good. What will be the price elasticity of demand for this good?

• A. Unitary elastic
• B. Perfectly elastic
• C. Perfectly inelastic
• D. Elastic

Answer 1

The Correct Option is C

Price elasticity of demand measures how much the quantity demanded changes in response to a price change. If the quantity demanded remains constant despite a change in price, the demand is perfectly inelastic.

Answer 2

Price elasticity of demand measures how much the quantity demanded of a good or service changes in response to a change in its price. It is a crucial concept in economics as it helps to understand how price changes affect consumer behavior and, ultimately, the revenue of producers.

If the quantity demanded remains constant despite a change in price, the demand is considered perfectly inelastic. In other words, no matter how much the price increases or decreases, the amount of the good demanded does not change. This situation typically occurs with necessities or products for which no substitutes are available, such as life-saving medications or essential goods.

On the other hand, if demand is highly responsive to price changes, it is considered elastic, where a small change in price leads to a large change in quantity demanded. Understanding the price elasticity of demand allows businesses and policymakers to make more informed decisions regarding pricing, taxation, and production strategies.