Question

If a given percentage change in price of a product leads to you having a smaller percentage change in demand, what does that tell you about the elasticity of demand for the product?

a) Elastic demand
b) Inelastic demand
c) Unitary elasticity
d) Perfectly inelastic demand

Answer 1

Option (b), An inelastic demand is indicated when a product's price change results in a smaller percentage change in demand, showing that consumers are relatively unresponsive to price fluctuations.

Step-by-step explanation:

If a given percentage change in price leads to a smaller percentage change in demand, this indicates that the product has an inelastic demand. This means that consumers are not highly responsive to changes in the price of the product.

For example, if the price of a product increases by 10%, but the demand only decreases by 4.5%, the demand is considered inelastic because the change in quantity demanded is proportionally less than the change in price. Elasticity of demand is a metric that provides this understanding by quantifying the responsiveness of demand to price changes.