ExpertMedium2 marksMultiple Choice
ACCA · Question 03 · Syllabus A: Business organisation and its external environment
AgriCorp produces a staple grain that forms the primary diet for a large region. Recently, AgriCorp increased the price of this grain by 15%. Consequently, the quantity demanded fell by only 3%.
Which of the following economic terms best describes the price elasticity of demand for AgriCorp's grain?
AgriCorp produces a staple grain that forms the primary diet for a large region. Recently, AgriCorp increased the price of this grain by 15%. Consequently, the quantity demanded fell by only 3%.
Which of the following economic terms best describes the price elasticity of demand for AgriCorp's grain?
Answer options:
A.
Perfectly elastic
B.
Price elastic
C.
Unitary elastic
D.
Price inelastic
How to approach this question
Compare the percentage change in demand to the percentage change in price. If demand changes less than price, it is inelastic.
Full Answer
D.Price inelastic✓ Correct
Price Elasticity of Demand (PED) measures responsiveness of demand to a price change. PED = % change in quantity / % change in price. Here, 3/15 = 0.2. Since PED < 1, demand is inelastic.
Common mistakes
Confusing elastic and inelastic. Remember: inelastic means demand doesn't stretch (change) much.
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