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Problem 16

# Which of the following statements regarding price elasticity is incorrect? a. $$A$$ product with a perfectly inelastic demand would have the same demand even as prices change. b. $$A$$ product with a perfectly inelastic demand would see demand change as prices change. c. When demand is price elastic, lower prices stimulate demand. d. When demand is price elastic, higher prices reduce demand.

### Short Answer

Expert verified
The incorrect statement regarding price elasticity is (b): A product with a perfectly inelastic demand would see demand change as prices change. This statement contradicts the definition of perfectly inelastic demand, where demand remains constant regardless of any changes in price.
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## Step 1: Understanding Price Elasticity of Demand

Price elasticity of demand is a measure of how the quantity demanded for a product changes in response to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. It helps us understand if a product has an elastic, inelastic, or perfectly inelastic demand.

## Step 2: Analyzing Statement a

A product with a perfectly inelastic demand would have the same demand even as the prices change. This statement is correct, as a perfectly inelastic demand means that the demand remains constant regardless of any change in price. The price elasticity of demand would be 0 in this case.

## Step 3: Analyzing Statement b

A product with a perfectly inelastic demand would see demand change as prices change. This statement is incorrect. As we discussed before, a product with a perfectly inelastic demand would not see any change in demand despite changes in price. This is the opposite of the true definition for perfectly inelastic demand.

## Step 4: Analyzing Statement c

When demand is price elastic, lower prices stimulate demand. This statement is correct. If demand is price elastic, it means that the quantity demanded responds more than proportionately to a change in price. When the price goes down, the quantity demanded increases.

## Step 5: Analyzing Statement d

When demand is price elastic, higher prices reduce demand. This statement is correct. Again, if demand is price elastic, the quantity demanded responds more than proportionately to a change in price. In this case, when the price goes up, the quantity demanded decreases.

## Step 6: Conclusion

Statement b is the incorrect statement regarding price elasticity. It contradicts the definition of perfectly inelastic demand, which is that the demand remains constant regardless of any changes in price.

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