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26 September, 20:42

A steel mill raises the price of steel by 7% which results in a 20% reduction in the quantity of steel demanded. The demand curve facing the firm is?

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  1. 26 September, 21:06
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    Elastic demand

    Explanation:

    The price elasticity of demand is described as the sensitivity of demand to changes in its price. A product is price elastic when a small change in prices causes a significant change in quantity demanded. If a small change in price results in minimal impact in quantity demanded, the product is price inelastic.

    Steel mill raised its prices by 7 percent. As a result, the demand declined by 20 percent. The demand decreased by a bigger rate than the change in price. It means a small change in price causes the demand to change significantly. Therefore, the demand curve is price elastic.
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