How does the price range of a product affect its price elasticity of demand?

• A. The price range has no effect on the elasticity of demand for a product.
• B. Demand becomes less elastic at higher price ranges because consumers are less sensitive to price changes.
• C. Demand tends to be more elastic at higher price ranges because consumers are more sensitive to price changes.
• D. Demand is always perfectly inelastic regardless of the price range.

Answer: (C)

Verified step by step guidance

1. Understand the concept of price elasticity of demand, which measures how much the quantity demanded of a product responds to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price, expressed as \(\text{Elasticity} = \frac{\% \Delta Q_d}{\% \Delta P}\).
2. Recognize that elasticity is not constant along a demand curve; it varies depending on the price level or price range. This is because the relative change in quantity demanded compared to the relative change in price can differ at different points on the demand curve.
3. At higher price ranges, the product typically represents a larger portion of the consumer's budget or is perceived as more significant, making consumers more sensitive to price changes. This increased sensitivity means that a small percentage change in price leads to a larger percentage change in quantity demanded, indicating higher elasticity.
4. Conversely, at lower price ranges, consumers may be less sensitive to price changes because the product costs less relative to their income or alternatives, resulting in lower elasticity (demand is more inelastic).
5. Therefore, the price range affects the price elasticity of demand by influencing consumer sensitivity: demand tends to be more elastic at higher price ranges and less elastic at lower price ranges.