What can you conclude about the price elasticity of demand in each of the following statements? a. "The pizza delivery business in this town is very competitive. I'd lose half my customers if I raised the price by as little as \(10 \%\)." b. "I owned both of the two Jerry Garcia autographed lithographs in existence. I sold one on eBay for a high price. But when I sold the second one, the price dropped by \(80 \%\)." c. "My economics professor has chosen to use the Krugman/Wells textbook for this class. I have no choice but to buy this book." d. "I always spend a total of exactly \(\$ 10\) per week on coffee."

Elastic demand occurs when the quantity demanded of a product changes significantly in response to a price change. This concept is exemplified by the pizza delivery business in the mentioned scenario. When the owner contemplates a slight price increase of 10%, they expect to lose a substantial number of customers—half, in this case.

The elasticity is measured by the percentage change in quantity demanded relative to the percentage change in price. Here, a 10% price hike leads to a 50% decrease in demand; hence, the demand is considered highly elastic. Understanding elastic demand helps businesses predict potential revenue changes when considering price adjustments.

Perfectly inelastic demand is a situation in which the quantity demanded remains constant regardless of any changes in price. This phenomenon is rare, as it typically involves essential goods or products with no available substitutes.

An example would be the case of the Krugman/Wells textbook that is mandatory for economics students. No matter the cost, students have to purchase the textbook for their course, indicating that the quantity demanded does not change with price. In this case, the price elasticity of demand is zero, denoting perfectly inelastic demand. It's important to note that only a few products or services exhibit perfectly inelastic demand, as most goods will experience some change in quantity demanded when prices fluctuate.

Spending Patterns and Demand Elasticity

When the total amount a consumer spends on a product doesn't change despite the fluctuation in the product's price, we are dealing with a situation termed unitary elastic demand. The scenario of an individual who consistently spends \(10 on coffee weekly illustrates this concept.

Whether prices go up or down, this person adjusts the quantity of coffee they buy to maintain their \)10 expenditure. Here, the percentage change in the price is exactly offset by an equal but opposite percentage change in the quantity demanded, implying a proportionate response. Unitary elastic demand is an important concept for businesses as they weigh price changes since it directly impacts total revenue.

Quantity demanded is a term referring to the specific amount of a good or service that consumers are willing and able to purchase at a given price. It is important not to confuse this with demand, which encompasses the entire range of quantities that would be purchased at any given price.

In the context of the four scenarios, the quantity demanded is affected differently. For instance, in the competitive pizza delivery market (elastic demand), quantity demanded decreases sharply with a price increase, while for the textbook (perfectly inelastic demand), the quantity demanded remains unchanged despite price changes. Consumers potentially exhibit different quantity demanded at each price level, which affects a firm's pricing strategy and overall market analysis.