ECONOMICS
DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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When expenditure on the good is a small part of total expenditure
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When the good has few uses
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When the good is habit-forming
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When there are many substitutes for the good
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Detailed explanation-1: -The absolute value of the price elasticity of demand is greater when substitutes are available, when the good is important in household budgets, and when buyers have more time to adjust to changes in the price of the good.
Detailed explanation-2: -When the price elasticity of demand is relatively elastic (−∞ < Ed < −1), the percentage change in quantity demanded is greater than that in price. Hence, when the price is raised, the total revenue falls, and vice versa.
Detailed explanation-3: -If price elasticity is greater than 1, the good is elastic; if less than 1, it is inelastic. If a good’s price elasticity is 0 (no amount of price change produces a change in demand), it is perfectly inelastic.
Detailed explanation-4: -A product has high elasticity when a price change causes a relatively significant change in demand. An inelastic product shows less demand changes from a price change.
Detailed explanation-5: -Some types of consumer goods show a higher price elasticity of demand than others. For example, non-essential goods have a high elasticity of demand, while essential goods or consumer staples have a low elasticity of demand.