Question

In 2003–2004, much of the western U.S. experienced a drought condition. For example in Denver, water usage was restricted. Yet even though most people used less water, the price of water did not drop. In fact, when the drought was over, the water company actually raised water prices. Still, residents of Denver did not use less water. Water is

A. price inelastic.
B. price elastic.
C. price sensitive.
D. price insensitive.
E. unitary elastic.

Answer 1

A. price inelastic.

Step-by-step explanation:

Price elasticity is the relationship between the demand for a product and a change in its price. Price elasticity of demand measures the effect of a change in the price of a good or service has on its demand. Products are said to be price elastic if a change in price will have a huge impact on the demand for that product. The term elasticity implies the responsiveness of demand to changes in price.

Water in this scenario is price inelastic. It means the demand for water is not responsive to the changes in prices. In other words, when the prices of water changes, the demand for water remains almost the same. In Denver, the demand for water remained constant despite several fluctuations in the price; thus, its demand is inelastic.