Question

Recently, much of the Western U.S. experienced drought conditions and water usage was restricted in California. Yet, even though most people used less water, the price of water did not drop. When the drought was declared over, the water company raised water prices. However, the residents of California did not use less water. Here, water is _______.

Answer 1

Answer:

Price inelastic.

Explanation:

Price can be defined as the amount of money that is required to be paid by a buyer (customer) to a seller (producer) in order to acquire goods and services.

In sales and marketing, pricing of products is considered to be an essential element of a business firm's marketing mix because place, promotion and product largely depends on it.

A price elasticity of demand can be defined as a measure of the responsiveness of the quantity of a product demanded with respect to a change in price of the product, all things being equal.

Mathematically, the price elasticity of demand is given by the formula;

$Price \; elasticity \; of \; demand = \frac {Percentage \; change \; in \; price}{Percentage \; change \; in \; demand}$

The demand for goods is said to be inelastic, when the quantity of goods demanded by consumers with respect to change in price is very small. Thus, the more easily a consumer can switch to a substitute product in relation to change in price, the greater the elasticity of demand.

Generally, consumers would like to buy a product as its price falls or become inexpensive.

In this scenario, the residents of California did not use less water even when the water company raised water prices. Thus, water is price inelastic.