If McDonald's reduces the price of a Big Mac by 25% and sales increase by more than 50%, the firm could describe demand as which of the following?

If McDonald's reduces the price of a Big Mac by 25% and sales increase by more than 50%, the firm could describe demand as which of the following?

• A. Inelastic
• B. Unit elastic
• C. Price insensitive
• D. Price sensitive; elastic

Answer: (D)

Price elasticity of demand shows how much buyers respond to price changes. If lowering the price by 25% leads to more than a 50% rise in quantity demanded, the elasticity is greater than 1 (for example, a 60% rise would give about 2.4). That means demand is elastic—buyers are highly responsive to price changes. “Price sensitive; elastic” matches this behavior, since price-sensitive describes the strong response and elastic is the formal term. The other descriptions don’t fit because inelastic or unit-elastic would imply a small or proportional response, not a more-than-proportional one, and price insensitive would imply no reaction at all.

Price elasticity of demand shows how much buyers respond to price changes. If lowering the price by 25% leads to more than a 50% rise in quantity demanded, the elasticity is greater than 1 (for example, a 60% rise would give about 2.4). That means demand is elastic—buyers are highly responsive to price changes. “Price sensitive; elastic” matches this behavior, since price-sensitive describes the strong response and elastic is the formal term. The other descriptions don’t fit because inelastic or unit-elastic would imply a small or proportional response, not a more-than-proportional one, and price insensitive would imply no reaction at all.