Question

Assume that when the price of cantaloupes is $2.50 the demand for cantaloupes is unit-elastic, and that the demand curve for cantaloupes is linear and downward sloping. If firms lower the price of cantaloupes to $2.00 which of the following statements can be made regarding the price elasticity of demand for cantaloupes?A. The demand for cantaloupes at $2.00 must be inelastic.B. We cannot determine whether the demand for cantaloupes is elastic or inelastic without knowing what the quantity demanded is at each price.C. The demand for cantaloupes at $2.00 must be elastic.D. The demand for cantaloupes at $2.00 must be unit-elastic.

Answer 1

The correct answer is option A.

Step-by-step explanation:

The demand for cantaloupes is unitary elastic at price level $2.50. The demand curve here is linear and downward sloping. The elasticity of demand is 1.

In this linear demand curve the lower portion will represent inelastic demand.

When the price level is reduced to $2 the demand will move to the lower portion of the curve, with fall in price and increase in demand.

So, at $2 price the demand will be inelastic, which means it will be between 0 and 1.