Telefon, a wireless communications company, tested the effect of a reduction in the price of its monthly service. Telefon lowered its rate from $36 to $30 per month and found that the number of users tripled. This means that the:
A)demand for cell phone service is inelastic in this price range.
B)demand curve for cell phone service shifted to the right.
C)supply curve for cell phone service shifted to the left.
D)demand for cell phone service is elastic in this price range.

Question

Quizplus · Accepted Answer

The demand for cell phone service is considered elastic in this price range because a reduction in price led to a more than proportional increase in the quantity demanded (the number of users tripled). Elasticity measures how sensitive the quantity demanded is to a change in price; in this case, the significant increase in users indicates high sensitivity or elasticity.

Telefon, a Wireless Communications Company, Tested the Effect of a Reduction