ExpertMedium2 marksMultiple Choice
ACCA · Question 03 · Business & Technology
Section A
"AquaPure" operates a municipal desalination plant providing essential drinking water to a desert region. The local government recently allowed AquaPure to increase its prices by 15%, which resulted in only a 2% drop in water consumption.
Which of the following economic terms best describes the demand for AquaPure's water?
Section A
"AquaPure" operates a municipal desalination plant providing essential drinking water to a desert region. The local government recently allowed AquaPure to increase its prices by 15%, which resulted in only a 2% drop in water consumption.
Which of the following economic terms best describes the demand for AquaPure's water?
Answer options:
A.
Perfectly elastic
B.
Price elastic
C.
Price inelastic
D.
Unitary elastic
How to approach this question
Compare the % change in price (15%) to the % change in demand (2%). Since 2% < 15%, demand is inelastic.
Full Answer
C.Price inelastic✓ Correct
Price elasticity of demand measures responsiveness of demand to a change in price. If the percentage change in quantity demanded is less than the percentage change in price, the demand is inelastic. Essential goods like water usually have inelastic demand.
Common mistakes
Selecting 'Price elastic' assuming any drop in demand means it is elastic.
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