The price of a good rises by 10%, and as a result the quantity demanded of it falls by only 4%. How is the demand for this good described?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Inelastic
Price elasticity of demand = % change in quantity demanded ÷ % change in price = 4 ÷ 10 = 0.4. When this value is less than 1, demand is called inelastic.