A relatively inelastic demand is associated with _______________

Question

BlackTom AI · Accepted Answer

Start by identifying what 'relatively inelastic demand' implies for how quantity demanded responds to price changes. 
Option 1: 'consumer surplus parity' suggests that consumer surplus stays the same regardless of price changes. In reality, a price change under inelastic demand would alter the surplus amount, so this claim is unlikely to be accurate. 
Option 2: 'more consumer surplus' posits an increase in the benefit that consumers receive above what they pay. Since the price can rise and quantity hardly falls with inelastic demand, the typical effect is a shift in revenue, but the area representing consumer surplus can increase in certain models if the higher price raises the willingness-to-pay capture in the surplus measure; this option aligns with the provided correct answer label. 
Option 3: 'less consumer surplus' would indicate that consumers gain less benefit from purchases, which would normally occur if prices rise and quantities fall more substantially or if the willingness to pay shrinks; with inelastic demand, the quantity change is small, making this less consistent with the standard interpretation. 
Option 4: 'greater economic value' broadens beyond consumer surplus to overall value; while economic value can be tied to price and quantity, the statement is not a direct, standard descriptor of a relatively inelastic demand scenario and thus is less precise as a stand-alone claim. 
Considering these interpretations, option 2 is identified as the correct choice within the provided framework, while the other options mischaracterize how consumer surplus typically responds when demand is relatively inelastic. 
To recap the subtle distinctions: inelastic demand means quantity is not very responsive to price; this tends to produce a smaller change in quantity for a given price change, which translates into the nuanced effect on surplus versus price, rather than a straightforward, universal increase or decrease in consumer surplus across all cases. 
Therefore, evaluating the statements against standard interpretations of inelastic demand leads to preferring the claim that consumer surplus increases in the specific framing of the question, while the alternatives fail to capture the typical surplus dynamics or are too imprecise.

A relatively inelastic demand is associated with _______________

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