1)Coal is required to make steel. Hence, the price elasticity of demand for coal by steel manufacturers will be

a. unit elastic.

b. perfectly elastic.

c. elastic.

d. inelastic.

2)Explain the three possible ranges for price elasticity of demand.

1)The correct answer is -

• Option (D) Inelastic

Explanation -

• Since coal is Required for the manufacturing of steel, coal becomes a necessity for steel makers. Without coal, it would not be possible to manufacture steel. With coal being a necessity, the price elasticity of demand for coal by steel manufacturers will be inelastic. In other words, an increase in price of coal will not reduce the demand the demand for coal by steel manufacturers.

As a general rule -

• For products that are a necessity, demand is inelastic.
• For products that are luxury, demand is elastic.

2)

• Between 0 and 1: in this range, the product has an inelastic demand. Here, a change in price causes a lower proportionate change its quantity demanded.
• Exactly equal to 1: when this happens, the product has a unitarily elastic demand . A change in price causes an equal proportionate change in quantity demanded.
• Above 1: Here, the product has an elastic demand. Any change in the price of the product causes a greater proportionate change in quantity demanded.