Suppose that the price elasticity of demand for firms A, B, C, and D is 0, 0.5, 1, and 1.5, respectively. An increase in the price would lead to a reduction in the quantity demanded for what?

Price Elasticity = Percentage change in quantity demanded/ Percentage change in price

The increase in price of the good will have the following effects in the quantity demanded of the individual firms:

1. Firm A

The elasticity of demand for firm A is 0, which means the demand is perfectly inelastic in nature. When the price of good increases, it will have no effect in the quantity demanded of the good. Whatever the level of price is, the quantity demanded of the good will remain the same at all price levels.

2. Firm B

The elasticity of demand for firm B being 0.5, the demand of the good is relatively inelastic in nature. Assuming the elasticity being an absolute value, when the price of the good change by 1 percentage, the quantity demanded will decrease by less than 1 percent.

3. Firm C

The elasticity of demand for the firm being equal to 1, the demand by the firm is unitary elastic. This means that, when the price of the good increases by one percent, the quantity demanded of the good will register an equivalent percentage decrease (assuming the elasticity as an absolute value).

4. Firm D

The elasticity of demand for firm D is 1.5 (absolute value), which indicates that the demand for the firm is relatively elastic in nature. This indicates that a one percent increase in price of the good, will lead to a more than one percent decrease in the quantity demanded of the good.f