The nation's largest cable TV company tested the effect of a price reduction for premium movie channels. It increased prices from $9.95 to $12 and found virtually no change in the number of customers. What does this illustrate?
A) The demand curve for the premium movie channels has shifted to the right.
B) The demand for premium movie channels is very elastic in this price range.
C) The supply curve for premium movie channels has shifted to the left.
D) The demand for premium movie channels is very inelastic in this price range.

Question

Quizplus · Accepted Answer

The fact that there was virtually no change in the number of customers despite a price increase from $9.95 to $12 indicates that the demand for premium movie channels in this price range is very inelastic. If the demand were elastic, customers would have responded more strongly to the price increase by reducing their purchases.

The Nation's Largest Cable TV Company Tested the Effect of a Price