Dynamic pricing allows for consumers with _________ demand to benefit from paying really high prices when trying to find a parking spot.

• A. Relatively elastic
• B. Unitary elasticity
• C. Relatively inelastic
• D. Perfectly elastic

Answer: (C)

The idea being tested is how price sensitivity, or the elasticity of demand, interacts with dynamic pricing. When parking spots are scarce, dynamic pricing raises prices to ration demand. Who ends up paying these high prices and still getting a spot? Those with relatively inelastic demand. Their quantity demanded doesn’t change much when price climbs, so they’ll still pay the higher price to secure a parking spot, meaning they benefit from the ability to obtain the resource despite the cost. In contrast, someone with elastic demand would greatly reduce their desire or switch to alternatives as prices rise, so they wouldn’t benefit as much from higher charges. If demand were unit elastic, the quantity would fall proportionally with price, offering less advantage from the higher price, and with perfectly elastic demand, any price increase would cut demand to zero.