ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a decrease in the incomes of consumers
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a decrease in the number of complements to tea
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an increase in the number of substitutes for tea
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an increase in the supply of tea
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Detailed explanation-1: -Elasticities are often lower in the short run than in the long run. Changes that just aren’t possible to make in a short amount of time are realistic over a longer time frame. On the demand side, that can mean consumers eventually make lifestyle choices-like buying a more fuel efficient car to reduce their gas usage.
Detailed explanation-2: -Time. Over time, a good tends to become more elastic because consumers and businesses have more time to find alternatives or substitutes. For example, if the price of gasoline increases, people will eventually adjust to that change, i.e. they may drive less, use public transportation, or form carpools.
Detailed explanation-3: -The four factors that affect price elasticity of demand are (1) availability of substitutes, (2) if the good is a luxury or a necessity, (3) the proportion of income spent on the good, and (4) how much time has elapsed since the time the price changed. If income elasticity is positive, the good is normal.
Detailed explanation-4: -An elastic demand is one in which the change in quantity demanded due to a change in price is large. An inelastic demand is one in which the change in quantity demanded due to a change in price is small. If the formula creates an absolute value greater than 1, the demand is elastic.