Demand is said to be inelastic if Select one: a.the quantity demanded changes only slightly when the price of the good changes. b.the price of the good responds only slightly to changes in demand. c.buyers respond substantially to changes in the price of the good. d.demand shifts only slightly when the price of the good changes. 29
The correct answer and explanation is:
Correct Answer:
a. The quantity demanded changes only slightly when the price of the good changes.
Explanation:
Demand elasticity measures how much the quantity demanded of a good responds to changes in its price. When demand is inelastic, the percentage change in quantity demanded is smaller than the percentage change in price. This means that consumers continue to buy nearly the same amount of the good, even if its price increases or decreases.
Understanding Inelastic Demand
Elasticity of demand is determined by the price elasticity of demand (PED), which is calculated as: PED=% Change in Quantity Demanded% Change in PricePED = \frac{\% \text{ Change in Quantity Demanded}}{\% \text{ Change in Price}}
If the absolute value of PED is less than 1, demand is inelastic. This means that consumers are relatively unresponsive to price changes.
Characteristics of Inelastic Demand
Several factors contribute to inelastic demand:
- Few or No Substitutes – If there are no close substitutes for a product, consumers will continue to buy it even if the price increases. For example, essential medications or basic necessities like salt have inelastic demand.
- Necessities vs. Luxuries – Essential goods, such as electricity and water, tend to have inelastic demand because people cannot easily reduce consumption regardless of price changes.
- Short-Term vs. Long-Term – In the short run, demand is often more inelastic because consumers need time to find alternatives or adjust their behavior.
- Small Proportion of Income – If a product represents only a small portion of a consumer’s budget (like chewing gum or salt), a price change will not significantly impact purchasing decisions.
Example of Inelastic Demand
Consider gasoline. If gas prices rise significantly, most people will still buy gas because they rely on it for transportation. They may reduce non-essential trips, but overall demand will decrease only slightly compared to the price increase.
Thus, inelastic demand means that even large price changes result in small changes in quantity demanded, making option (a) the correct choice.