If the quantity demanded changes by a smaller percentage than the change in price, this type of demand is called:

If the quantity demanded changes by a smaller percentage than the change in price, this type of demand is called:

• A. Inelastic Demand
• B. Elastic Demand
• C. Unitary Elastic Demand
• D. Perfectly Elastic Demand

Answer: (A)

Price changes and how buyers respond to them is what price elasticity of demand measures. When the quantity demanded changes by a smaller percentage than the price changes, the demand is inelastic (elasticity magnitude less than 1). This happens with goods that are essential or have few substitutes, so people keep buying about the same amount even when prices go up or down. For example, if the price rises 10% but the quantity demanded falls only 5%, the demand is inelastic. In such cases, higher prices tend to increase total revenue because the drop in quantity isn’t enough to offset the higher price. If demand were elastic, the quantity would fall by a larger percentage than the price rise; if it were unitary elastic, the percentages would be equal; and if it were perfectly elastic, consumers would respond infinitely to price changes. This type of demand is inelastic demand.

Price changes and how buyers respond to them is what price elasticity of demand measures. When the quantity demanded changes by a smaller percentage than the price changes, the demand is inelastic (elasticity magnitude less than 1). This happens with goods that are essential or have few substitutes, so people keep buying about the same amount even when prices go up or down. For example, if the price rises 10% but the quantity demanded falls only 5%, the demand is inelastic. In such cases, higher prices tend to increase total revenue because the drop in quantity isn’t enough to offset the higher price. If demand were elastic, the quantity would fall by a larger percentage than the price rise; if it were unitary elastic, the percentages would be equal; and if it were perfectly elastic, consumers would respond infinitely to price changes. This type of demand is inelastic demand.