Question

if the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is:
a. unitary elastic.
b. inelastic.
c. elastic.
d. perfectly inelastic.

Explanation:

Price elasticity of demand is calculated as the ratio of the percentage change in quantity demanded to the percentage change in price. When the percentage change in quantity demanded is smaller than that of price, the absolute value of this ratio is less than 1, which defines inelastic demand. Unitary elastic means the two percentage changes are equal, elastic means quantity change is larger, and perfectly inelastic means quantity demanded does not change at all with price changes.

Answer:

b. inelastic.