If Demand Is Perfectly Elastic

question 3

Multiple Choice

If demand is perfectly elastic,

• A)then a 1% increase in price leads to a fall in quantity of greater than 1%.
• B)then a 1% increase in price leads to a fall in quantity of less than 1%.
• C)then a 1% increase in price causes quantity demanded to fall to zero.
• D)then a 1% increase in price has no effect on quantity demanded.

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Definitions:

Sunk Cost

Costs that have already been incurred and cannot be recovered, which should not factor into future business decisions.

Future Decisions

Choices or judgements that will be made in an upcoming period, often based on past and present information and forecasts.

Overhead Allocation

The process of spreading out fixed costs, such as salaries and utilities, across different departments or production activities within a company.

Product Cost Distortion

The inaccurate allocation of production costs to products, potentially leading to misleading cost information and pricing decisions.