Question

Shana continues to buy a necessary medicine even though prices for the medicine rise sharply. Shana's behavior shows howa. the passage of time affects elasticityb. the law of demand eliminates elasticityc. luxury goods are not subject to elasticityd. demand for necessities is inelastic

Answer 1

Answer:

The correct answer is d. Demand for necessities is inelastic.

Explanation:

The price elasticity of demand is measured by the percentual change in quantity of a good divided by the percentual change in the price of the same good. Mathematically:

ε = $\frac{dQ/Q}{dP/P}$

Where ε represents the price elasticity of demand, Q represents the quantity demanded of a good, P represents the price of the good, dQ represents the variation of the quantity demanded of that good and dP represents the variation of the price of the good.

When the quantity of a good changes less than proportionally than the change in price of the good, it means that the elasticity is inelastic.

Mathematically:

$\frac{dQ}{Q}$ < $\frac{dP}{P}$ ⇒ ε < 1

We can conclude that even though the price of Shana's medicine rises sharply, the fact that she continues to buy it shows no variation in the quantity demanded, therefore the demand for necessities is inelastic.