Imagine a local bakery increases the price of its bread by 20%. As a result, the quantity of bread demanded decreases by 10%. What does this indicate about the price elasticity of demand for the bakery's bread?

When the local bakery raises the price of its bread by 20%, and the quantity of bread people want to buy goes down by 10%, this shows how sensitive customers are to changes in price. This situation indicates that the demand for the bread is relatively inelastic because the percentage change in demand (10%) is smaller than the percentage change in price (20%). Inelastic demand means that even with a price increase, people will still buy bread, but not as much. For example, if a loaf of bread costs $1 and the bakery raises it to $1. 20, some customers might buy fewer loaves, but many will still buy bread because they need it.