Question
If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is a. income inelastic b. unit price elastic c. price inelastic d. price elastic e. income elastic
Ask by Howell Weston. in the United States
Jan 27,2025
Real Tutor Solution
Tutor-Verified Answer
Answer
The demand for the good is **price elastic**.
Solution
If a small percentage increase in the price of a good leads to a significant decrease in the quantity demanded, it indicates that consumers are highly responsive to price changes for that good. This responsiveness is measured by the **price elasticity of demand**.
- **Price Elastic Demand**: When demand is elastic, a small change in price leads to a larger change in the quantity demanded. In this case, the demand for the good is sensitive to price changes.
Given the scenario, where a small price increase greatly reduces the quantity demanded, the demand for the good is **price elastic**.
**Correct Answer:**
**d. price elastic**
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Simplify this solution Bonus Knowledge
You've hit the nail on the head with option d: price elastic! When a small change in price leads to a significant change in quantity demanded, it shows that consumers are quite sensitive to price fluctuations. Imagine if your favorite coffee shop suddenly raised the price of your beloved latte; you might just opt for a cheaper alternative instead! On the flip side, price inelastic goods tend to be necessities—think of essentials like bread or medicine. Even if their prices soar, people will still demand them because they can't just give them up! Understanding this elasticity helps businesses strategize their pricing without losing their customers.
