Texas A&M University (TAMU) ECON202 Principles of Economics Practice Exam 1

Perfectly inelastic demand is characterized by the quantity demanded being completely unresponsive to changes in price. This means that regardless of how much the price increases or decreases, the quantity demanded remains constant. This situation is typically represented by a vertical demand curve on a graph, indicating that consumers will buy the same amount of the good or service no matter its price.

The understanding of this concept is crucial because it illustrates scenarios where consumers feel they must purchase a product regardless of price changes, such as with essential goods or highly addictive substances. This situation reflects a price elasticity of demand equal to zero, indicating no responsiveness to price alterations.

In contrast, other responses indicate various degrees of flexibility in demand: some suggest that quantity demanded changes significantly with price, while others mention demand curves that are horizontal, which relates to perfectly elastic demand instead.

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