Final answer:
In the scenario where both price and quantity sold decrease, this suggests inelastic demand, as consumers are not responding strongly to the change in price. An elastic demand would typically see an increased quantity demanded when prices fall, unlike the observed outcome here.
Step-by-step explanation:
In a particular market situation where a reduction in price leads to a reduction in the amount sold, it suggests that the demand is inelastic. Inelastic demand means that consumers are not highly responsive to changes in price. If the demand were elastic, a decrease in price would typically result in an increase in the quantity demanded because consumers would take advantage of the lower price and buy more. In this case, however, despite the price falling, less of the product is being purchased which does not conform to the pattern of elastic demand.
When it comes to elasticity, we can broadly categorize into three types: elastic, inelastic, and unitary. Elastic demand or supply indicates an elasticity greater than one, signifying high responsiveness to price changes. In contrast, an elasticity less than one represents inelastic demand or supply, showcasing low responsiveness. Unitary elasticity means that the demand or supply is proportionally responsive to price changes.
Given that the price fell and the sales volume also dropped, the most likely explanation is that some other factor—perhaps a change in consumer preferences, the introduction of a superior substitute, or a decrease in the income of buyers—affected the demand independently of the price move. If it were purely a matter of price elasticity, a lower price would normally lead to more, not less, being sold if the demand were elastic. Therefore, the correct answer to the given situation is that demand is inelastic.