Question

Gus buys cupcakes every saturday morning. when he walks into the bakery, he always orders by saying, "give me $10 worth of cupcakes." what does this tell you about gus's elasticity of demand for cupcakes?

Answer 1

Elasticity of demand measures the responsiveness of quantity demanded to a change in the price of the good.

a. Perfectly elastic - The good is perfectly elastic when the consumer is ready to buy any quantity at a fixed price.

b. Perfectly inelastic- The good is perfectly inelastic when the change in the price of the good has not effect on its demand, that is when quantity demanded is same at whatever price.

So, because here Gus is ready to buy any units of cupcakes at a fixed price of $10, the demand for cupcakes should be perfectly elastic.