10. A local coffee shop is facing inelastic demand for its coffee, so the manager decreases the price of coffee by 5%. What will happen to the quantity demanded for this shop’s coffee?
Answer: A
The quantity demanded for the coffee will increase by less than 5%.
Inelastic demand indicates that the quantity demanded is not very responsive to price changes. Therefore, a 5% decrease in the price of coffee will result in an increase in quantity demanded, but this increase will be proportionately less than the price decrease.
A) Increases by less than 5%
This option accurately reflects the nature of inelastic demand. When the price decreases by 5%, the quantity demanded increases, but since demand is inelastic, the increase will be less than the price drop.
B) Decreases by more than 5%
This option is incorrect as it suggests that the quantity demanded would decrease with a price reduction. Inelastic demand means that the quantity demanded does not fall when prices drop; rather, it increases, albeit less than the percentage decrease in price.
C) Increases by more than 5%
This option is also incorrect. For inelastic demand, the increase in quantity demanded cannot exceed the percentage change in price. Thus, an increase by more than 5% contradicts the definition of inelastic demand.
D) Decreases by less than 5%
This option is incorrect, as it implies a decrease in quantity demanded resulting from a price drop. With inelastic demand, a decrease in price leads to an increase in quantity demanded, not a decrease.
Conclusion
The correct answer, "increases by less than 5%," is definitive because it aligns with the characteristics of inelastic demand. All other options fail because they misinterpret the relationship between price changes and quantity demanded, particularly in the context of inelastic demand where price reductions lead to increases in quantity demanded, albeit at a lesser rate.