Suppose that the price elasticity of demand for firms A, B, C, and D is 0, 0.5, 1, and 1.5, respectively. An increase in the price would lead to a reduction in the quantity demanded for
A) all four firms.
B) firms B, C, and D.
C) firms C and D.
D) firm D.
E) none of the firms; the answer cannot be determined from the information given.

Question

Quizplus · Accepted Answer

Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. A price elasticity of 0 (firm A) means demand is perfectly inelastic, so quantity demanded doesn't change with price. For firms B, C, and D, with elasticities of 0.5, 1, and 1.5 respectively, an increase in price would lead to a reduction in quantity demanded, as their demands are price elastic to varying degrees.

Suppose That the Price Elasticity of Demand for Firms A