If the equilibrium price elasticity of demand is -1 and the elasticity of supply is 1.5, what does this indicate about the market?

The analysis of the price elasticity of demand and supply helps to understand consumer sensitivity to price changes and how sellers react to those changes. In this scenario, a price elasticity of demand of -1 signifies unitary elasticity. This means that a 1% change in price will result in an exact 1% change in the quantity demanded, suggesting that consumers are responding proportionately to price changes.

On the supply side, an elasticity of 1.5 indicates that the supply is elastic. This means that for every 1% increase in the price, there is a 1.5% increase in the quantity supplied. Suppliers are quite responsive to price changes, which is characteristic of elastic supply.

Combining these two pieces of information, we find that the demand has a unitary elasticity, while the supply is elastic. This aligns perfectly with the characteristics of the market specified in the correct choice, indicating a scenario where the quantity demanded adjusts exactly with price changes while quantity supplied adjusts even more aggressively to price fluctuations. In essence, this reflects a balanced interaction where demand doesn't overreact while the supply side shows a strong responsiveness to price changes.