Joe, if another phone service provider enters the market and forces Connecting ?? ?to drop the price of a gigabyte down even further than $16– ?let’s say they drop it by an additional 22.2%– ?what will probably happen to your quantity demanded of data?
My quantity demanded will increase, but by less than 40 ?percent.
My quantity demanded will decrease by more than 40 ?percent.
My quantity demanded will increase by more than 40 ?percent.
Submit
The correct answer and explanation is:
Correct Answer:
My quantity demanded will increase, but by less than 40 percent.
Explanation:
The relationship between price and quantity demanded is described by the law of demand, which states that as the price of a good decreases, the quantity demanded generally increases, all else being equal. This is because lower prices make the good more affordable, attracting more buyers or encouraging existing buyers to consume more.
In this case, if the price of data drops by an additional 22.2% below $16, the quantity demanded is expected to rise because lower prices incentivize higher consumption of data. However, the increase in quantity demanded is not directly proportional to the percentage decrease in price. The extent of this response depends on the price elasticity of demand, which measures how sensitive the quantity demanded of a good is to a change in its price.
If the price elasticity of demand is less than 1 (inelastic demand), the percentage change in quantity demanded will be less than the percentage change in price. In most cases, demand for mobile data tends to be somewhat inelastic because while consumers use more data as prices drop, their consumption is limited by time, device capabilities, or habits. Therefore, even with a price reduction of 22.2%, the quantity demanded will increase, but it is unlikely to rise by more than 40%.
Why Other Options Are Incorrect:
- My quantity demanded will decrease by more than 40 percent: This is incorrect because a price drop would lead to an increase in quantity demanded, not a decrease.
- My quantity demanded will increase by more than 40 percent: While quantity demanded increases with a price drop, the increase is likely less than 40% due to the inelastic nature of demand for mobile data.
Thus, the best answer is that quantity demanded will increase, but by less than 40 percent.