Question

Richard Anderson, an entrepreneur residing in Arizona, noticed that many of his friends and neighbors complained of the intense heat during the summer months. In order to make the heat more bearable, Anderson developed and marketed a simple cooling system that sprayed a fine mist of water into the air. The system attached easily to patio roofs, backyard fences, and even golf carts. Since introducing the product on the market, Anderson has discovered that relatively large changes in the price of the system lead to relatively small changes in demand for his product. The demand for Anderson's product is:

Answer 1

Inelastic

Step-by-step explanation:

When the price elasticity of demand (PED) is lower than 1, the demand is said to be inelastic. This means that a 1% increase in the price of a good or service will result in a proportionally smaller reduction of the quantity demanded. The formula for calculating price elasticity of demand is:

PED = % of change in quantity / % of change in price

For example, if the price of gasoline increases by 5% but the quantity demanded for gasoline decreases only by 2%, the PED = 2% / 5% = 0.4, therefore the demand for gasoline is inelastic.