-Company X's rivals follow its price increases but not its price decreases. Company Y's rivals follow its price decreases but not its price increases. The demand curves for Companies X and Y are shown, respectively, by the:
A) curves in Figure A and Figure B.
B) curves in Figure B and Figure A.
C) inside line and outside line in Figure D.
D) upward-sloping segment and downward-sloping segment of the line in Figure C.

Question

-Company X's rivals follow its price increases but not its price decreases. Company Y's rivals follow its price decreases but not its price increases. The demand curves for Companies X and Y are shown, respectively, by the:
A) curves in Figure A and Figure B. 
B) curves in Figure B and Figure A. 
C) inside line and outside line in Figure D. 
D) upward-sloping segment and downward-sloping segment of the line in Figure C.

Quizplus · Accepted Answer

Company X, whose rivals follow its price increases but not decreases, faces a more inelastic demand curve when raising prices (since consumers have fewer comparable alternatives due to the lack of a corresponding price decrease from competitors). Conversely, when Company Y decreases prices and its rivals follow, it faces a more elastic demand curve, as consumers have many alternatives at the lower price. Thus, Company Y's demand curve would be more elastic (flatter) compared to Company X's more inelastic (steeper) demand curve, aligning with the descriptions of Figures B and A, respectively.

-Company X's Rivals Follow Its Price Increases but Not Its