ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Good X is a luxury good.
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Good X is habit-forming.
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The proportion of income spent on Good X is very high.
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There are a large number of substitutes for Good X.
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Detailed explanation-1: -Demand for a good will tend to be more elastic if the small part of the consumer’s income spent on it, because a small part of income spent on good have inelastic demand.
Detailed explanation-2: -Inelastic demand occurs when the ratio of quantity demanded to price is between zero and one unit elastic. This typically occurs when a particular good or service lacks adequate substitutes and represents a necessity. Examples of goods with inelastic demand include gasoline, necessary foods, and prescription drugs.
Detailed explanation-3: -Some commodities are habit-forming while others are not. For habit forming commodities, they tend to have less elastic or inelastic demand because once the habit is formed; it is a bit difficult to break away from it even when the price of the commodity increases significantly.
Detailed explanation-4: -When the demand for a good is inelastic, that good is likely to have: few close substitutes. If consumers cannot readily switch to a close substitute when the price of a good increases, the demand for that good is likely to be: inelastic.