classify the coefficient of the Price Elasticity of Demand.
A Elastic
B Inelastic
C Perfectly Elastic
D Perfectly Inelastic
E Unit Elastic
The correct answer and explanation is:
To provide the correct answer and explanation, I’ll clarify the concept of Price Elasticity of Demand (PED) and how to classify its coefficient.
Price Elasticity of Demand (PED) — Overview:
PED measures how much the quantity demanded of a good responds to a change in its price. It is calculated as: PED=% change in quantity demanded% change in price\text{PED} = \frac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}}
Classification of PED values:
- Elastic Demand (A): PED > 1
Quantity demanded changes more than proportionately to price change.
Consumers are very responsive to price changes. - Inelastic Demand (B): PED < 1
Quantity demanded changes less than proportionately to price change.
Consumers are less responsive to price changes. - Unit Elastic Demand (E): PED = 1
Quantity demanded changes exactly proportionately to price change. - Perfectly Elastic Demand (C): PED = ∞ (infinite)
Quantity demanded changes infinitely with a tiny price change. Demand curve is horizontal. - Perfectly Inelastic Demand (D): PED = 0
Quantity demanded does not change regardless of price change. Demand curve is vertical.
Applying to Question 2:
Since you referenced my response in Question 2 but did not give the numeric coefficient here, I will summarize the classification method.
If the coefficient of the Price Elasticity of Demand (PED) from Question 2 is:
- Greater than 1, then the demand is Elastic (A).
- Less than 1, then the demand is Inelastic (B).
- Equal to 1, then the demand is Unit Elastic (E).
- Exactly zero, then Perfectly Inelastic (D).
- Infinite, then Perfectly Elastic (C).
Why is this important?
Understanding the elasticity helps businesses and policymakers predict how changes in price affect total revenue and consumer behavior.
- For elastic demand, price increases reduce total revenue because quantity demanded falls significantly.
- For inelastic demand, price increases raise total revenue because quantity demanded drops only slightly.
- For unit elastic demand, total revenue stays constant when price changes.
Summary:
Without the numeric value, you classify the coefficient based on these rules. For example, if the PED was 0.5, the answer is B Inelastic because 0.5 < 1.