If the absolute value of the price elasticity of demand for good is .75, the demand for that good is described as<\/p>\n\n\n\n
The correct answer and explanation is:<\/strong><\/mark><\/p>\n\n\n\n Correct Answer: Inelastic<\/strong><\/p>\n\n\n\n Explanation (300 words):<\/strong><\/p>\n\n\n\n The price elasticity of demand (PED) measures how sensitive the quantity demanded of a good is to a change in its price. It is calculated using the formula: PED=% change in quantity demanded% change in price\\text{PED} = \\frac{\\%\\text{ change in quantity demanded}}{\\%\\text{ change in price}}<\/p>\n\n\n\n The absolute value<\/strong> of PED is used because demand typically responds negatively to price changes (when price goes up, demand goes down), resulting in a negative PED. However, for interpretation purposes, we focus on the absolute value.<\/p>\n\n\n\n In this case, the absolute value of the price elasticity of demand is 0.75<\/strong>. This falls into the category of inelastic demand<\/strong>, which is defined as:<\/p>\n\n\n\n Inelastic demand<\/strong> means that the percentage change in quantity demanded is less<\/strong> than the percentage change in price. For example, if the price of the good increases by 10%, the quantity demanded would decrease by only 7.5% (since 0.75 \u00d7 10% = 7.5%). Consumers are relatively unresponsive to changes in price.<\/p>\n\n\n\n This kind of behavior usually occurs with necessities or goods with few substitutes<\/strong>, such as basic food items, gasoline, or prescription drugs. Because consumers still need these products regardless of price changes, the quantity demanded doesn\u2019t change much when the price changes.<\/p>\n\n\n\n From a business perspective, if demand is inelastic, raising prices<\/strong> can increase total revenue<\/strong>, because the drop in quantity sold is proportionally smaller than the increase in price.<\/p>\n\n\n\n In summary, when the price elasticity of demand is 0.75 (less than 1), the good is considered inelastic<\/strong>, meaning that consumers are not highly responsive<\/strong> to price changes, and changes in price result in smaller changes in quantity demanded<\/strong>.<\/p>\n\n\n\n
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