What is the effect of a 10 percent price increase on quantity demanded if elasticity is larger than zero but less than 1?
A)Quantity demanded does not change.
B)Quantity demanded drops by less than 10 percent.
C)Quantity demanded drops by 10 percent.
D)Quantity demanded drops by more than 10 percent.
E)Quantity demanded drops to 0.

Question

Quizplus · Accepted Answer

When the elasticity is less than 1, it means that the quantity demanded is not very responsive to changes in price. Therefore, a 10 percent price increase will lead to a less than 10 percent drop in quantity demanded. This can be seen as a movement along the demand curve to a lower quantity demanded point, but not a complete drop off the curve. Option B is the best choice as it reflects this concept.

What Is the Effect of a 10 Percent Price Increase