A video store owner noticed a 5% drop in rentals of DVDs after raising her prices 10%. Are DVD rentals elastic, inelastic, or unit elastic?

Inelastic

Explanation:

The price elasticity of demand is the degree of responsiveness of demand for a product or service to a unit change in price. The demand for a product is said to be elastic when a change in price has a relatively large effect on the demand for the product, unitary when there is a percentage change in price brings about an equal percentage change in the demand for the product, and inelastic when a change in the price of a product brings about a smaller change in the demand for the product.

In the case of the DVD rentals, a 10% increase in price brought about only a 5% drop in demand. Hence, the demand for DVD rentals is said to be inelastic because a change in the price brought about a smaller change in the demand for DVD rentals.

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