1)If demand is perfectly inelastic, then the demand curve is:

A. vertical
B. horizontal
C. upward sloping
D. downward sloping
E. concave (bowed away from the origin)

2)By measuring the price elasticity of demand in terms of percentage changes, economists

A. can compare how consumers respond to changes in the prices of different products.

B. can compare how consumers respond to changes in the quantities supplied of different products.

C. can differentiate consumer tastes and preferences across different income levels.

D. can make value judgments about how consumers spend their incomes.

E. can compare how consumers respond only to changes in the price of the same product.

1)If demand is perfectly inelastic, then the demand curve is B. horizontal.

For a perfectly-competitive firm, the demand curve facing each individual firm is perfectly elastic. This is because if any firm raises its price slightly above the market price, then it loses all of its customers and this earns it zero revenue. In this case, the demand curve is perfectly elastic and horizontal at the market price.

2)

• The correct answer is A. can compare how consumers respond to changes in the prices of different products.

An economist can contrast consumers' responses to price variations of various products through demand elasticity. The easier a consumer can replace a specific product due to increased price for another, the more the price will decrease. The more optional buying a product is, the more its quantity will decrease regarding price; thus, the elasticity will be higher. The less optional buying a good is, the less the demand will decrease; thus, the elasticity will be lower.