Question : If the price elasticity of demand for a good is less than 1, the demand is:
Option 1: Elastic.
Option 2: Inelastic.
Option 3: Unit elastic.
Option 4: Perfectly elastic.
Correct Answer: Inelastic.
Solution : The correct answer is (b) Inelastic.
Price elasticity of demand is used to measure the responsiveness of quantity demanded to changes in price. When the price elasticity of demand is less than 1, it indicates that the percentage change in quantity demanded is smaller than the percentage change in price. In other words, a change in price has a proportionally smaller impact on the quantity demanded.
An inelastic demand suggests that consumers are less sensitive to changes in price and are not highly responsive in adjusting their quantity demanded in response to price changes. In such cases, even if the price of the good changes, the quantity demanded does not change significantly, resulting in a less elastic or inelastic demand.