The Water and Sewerage Authority in Trinidad considers raising water rates. If demand for water is highly inelastic, what effect would a 10% price increase have on the quantity of water demanded?

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Question

The Water and Sewerage Authority in Trinidad considers raising water rates. If demand for water is highly inelastic, what effect would a 10% price increase have on the quantity of water demanded?

Accepted Answer

Quantity demanded would fall by less than 10% — Award 1 mark for understanding that inelastic demand means consumers are not very responsive to price changes, so the percentage fall in quantity demanded is smaller than the percentage rise in price. A is incorrect — this describes elastic demand. C is incorrect — this describes unit elastic demand. D is incorrect — this would violate the law of demand.

Answer

Quantity demanded would fall by exactly 10%

Answer

Quantity demanded would fall by more than 10%

Answer

Quantity demanded would increase

Answer

Quantity demanded would fall by less than 10%

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