ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The availability of substitute goods
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A limited budget that does not allow for price changes
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The perception of a good as a luxury item.
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The perception of a good as a need.
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Detailed explanation-1: -Luxury goods have an income elasticity of demand greater than 1, which means its consumptions increase more than income (Costa-Font et al. 2011). Income elasticity reflects the responsiveness of the demand for a consumer’s income changes.
Detailed explanation-2: -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.
Detailed explanation-3: -High-priced products often are highly elastic because, if prices fall, consumers are likely to buy at a lower price. Goods with many alternatives or competitors are elastic because, as the price of the good rises, consumers shift purchases to substitute items.
Detailed explanation-4: -Nature or type of Good. The Elasticity of Demand for a good is affected by its nature. Availability of Substitutes. The Price Elasticity of Demand for a good, with a large number of substitutes available, is very high. Price Level. Income Levels. Time Period. 11-Jan-2021