If a 10% price drop results in less than a 10% increase in quantity, demand is

If a 10% price drop results in less than a 10% increase in quantity, demand is

• A. Unitary elastic
• B. Perfectly elastic
• C. Inelastic
• D. Elastic

Answer: (C)

Price elasticity of demand measures how much quantity demanded changes when price changes. If a 10% price drop leads to less than a 10% increase in quantity, the elasticity magnitude is less than 1. That means demand is inelastic: consumers are relatively unresponsive to price changes, so the percentage change in quantity is smaller than the percentage change in price. As a rule of thumb, elasticity less than 1 (in absolute value) indicates inelastic demand, exactly 1 indicates unitary elastic, and greater than 1 indicates elastic. Inelastic demand often occurs for necessities with few substitutes.

Price elasticity of demand measures how much quantity demanded changes when price changes. If a 10% price drop leads to less than a 10% increase in quantity, the elasticity magnitude is less than 1. That means demand is inelastic: consumers are relatively unresponsive to price changes, so the percentage change in quantity is smaller than the percentage change in price.

As a rule of thumb, elasticity less than 1 (in absolute value) indicates inelastic demand, exactly 1 indicates unitary elastic, and greater than 1 indicates elastic. Inelastic demand often occurs for necessities with few substitutes.