Demand is perfectly inelastic when changes in price cause no change in quantity demanded.

Demand is perfectly inelastic when changes in price cause no change in quantity demanded.

• A. Changes in price cause no change in quantity demanded.
• B. The good has perfect substitutes.
• C. Shifts in supply cause no change in total revenue.
• D. Shifts in supply cause no change in price.

Answer: (B)

Perfectly inelastic demand means quantity demanded does not react to price changes. This happens when a good is a necessity with no close substitutes, so people will buy roughly the same amount no matter how the price moves. The statement that changes in price cause no change in quantity demanded directly captures that idea, so it’s the description that fits perfectly inelastic demand. Having perfect substitutes, by contrast, makes demand highly elastic: if the price of one good rises, consumers switch to the substitute, so quantity demanded responds strongly to price changes. Shifts in supply affect price and quantity in the market, and total revenue depends on the elasticity of demand, but these are not descriptions of what perfectly inelastic demand means.

Perfectly inelastic demand means quantity demanded does not react to price changes. This happens when a good is a necessity with no close substitutes, so people will buy roughly the same amount no matter how the price moves.

The statement that changes in price cause no change in quantity demanded directly captures that idea, so it’s the description that fits perfectly inelastic demand.

Having perfect substitutes, by contrast, makes demand highly elastic: if the price of one good rises, consumers switch to the substitute, so quantity demanded responds strongly to price changes. Shifts in supply affect price and quantity in the market, and total revenue depends on the elasticity of demand, but these are not descriptions of what perfectly inelastic demand means.