A local bakery raises the price of its signature cake by 20% and observes that the quantity demanded decreases by 10%. How would you classify the demand for the cake based on this information?

The situation described shows that when the price of the cake increases by 20%, the quantity demanded decreases by 10%. This means that customers are somewhat sensitive to the price change. To understand this better, we can look at the concept of elasticity of demand, which measures how much the quantity demanded changes in response to a price change. In this case, the percentage change in quantity demanded (10%) is less than the percentage change in price (20%), indicating that the demand is inelastic. This means that even though the price went up, people still buy the cake, but not as much as before.