Question

the price elasticity of demand for electricity is -0.8. The value tells you that the demand for electricity is ___ and that for any given % change in price, the % change in quantity demanded must be ___.

a. elastic, larger

b. elastic, smaller

c. inelastic, larger

d. inelastic, smallere.

Answer 1

Inelastic, smaller

Here the elasticity of demand for electricity is less than 1 and it suggests that the demand is insensitive to the price. The demand is said to be inelastic when the elasticity of demand is less than 1. The demand of electricity is inelastic as it doesn't have any close substitutes. And that for any given % change in price, the % change in quantity demanded must be smaller because of no close substitute of electricity.