Refer to Figure 5-1. Between point A and point B on the graph, demand is:

• A. elastic
• B. unit elastic
• C. inelastic
• D. perfectly inelastic

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of price elasticity of demand, which measures how much the quantity demanded responds to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
2. Step 2: Recall the definitions: demand is elastic if elasticity > 1 (quantity demanded changes more than price), inelastic if elasticity < 1 (quantity demanded changes less than price), unit elastic if elasticity = 1 (quantity demanded changes exactly as price), and perfectly inelastic if elasticity = 0 (quantity demanded does not change at all).
3. Step 3: Examine the graph between points A and B to observe how quantity demanded and price change. Identify the percentage change in quantity demanded and the percentage change in price between these two points.
4. Step 4: Calculate the price elasticity of demand using the midpoint formula: \[\text{Elasticity} = \frac{\frac{Q_B - Q_A}{(Q_B + Q_A)/2}}{\frac{P_B - P_A}{(P_B + P_A)/2}}\] where \(Q_A\) and \(Q_B\) are quantities at points A and B, and \(P_A\) and \(P_B\) are prices at points A and B.
5. Step 5: Compare the calculated elasticity value to 1 to determine if demand between points A and B is elastic, inelastic, unit elastic, or perfectly inelastic.