Question : If the price elasticity of demand for a good is zero, it means the demand is:
Option 1: Elastic
Option 2: Inelastic.
Option 3: Unit elastic.
Option 4: Perfectly elastic.
Correct Answer: Perfectly elastic.
Solution : The correct answer is (d) Perfectly elastic.
When the price elasticity of demand for a good is zero, it means the demand is perfectly inelastic, not inelastic as I previously mentioned. In the case of perfectly inelastic demand, a change in price does not lead to any change in the quantity demanded. This typically occurs when the good is a necessity, has no substitutes, or is highly essential for consumers.
On the other hand, when the price elasticity of demand is perfectly elastic, it means that even a slight change in price results in an infinitely large change in the quantity demanded. In other words, consumers are extremely sensitive to changes in price, and small price increases would lead to a complete loss of demand.
