ECONOMICS
ELASTICITY OF DEMAND
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
It has lots of substitutes
|
|
|
It consumes a low % of income
|
|
|
It is a necessity
|
|
|
It is in the short-term
|
Detailed explanation-1: -1 Hence, the demand for goods or services with many substitutes is highly price elastic; a small increase in the price levels of goods causes consumers to buy its substitutes. For example, the demand for soda is highly price-elastic because of a large number of substitutes.
Detailed explanation-2: -Elastic goods typically have lots of substitutes. They are often luxury items, services or plans. Some products with elastic demand, like foods or toiletries, make the list because of the number of options available. For example, if the cost of one deodorant brand goes up, consumers are likely to switch brands.
Detailed explanation-3: -The price elasticity of demand for a good or service will be greater in absolute value if many close substitutes are available for it. If there are lots of substitutes for a particular good or service, then it is easy for consumers to switch to those substitutes when there is a price increase for that good or service.
Detailed explanation-4: -The elasticity rises with the availability of substitutes, that is, the higher the number of substitutes, the more will be the number of options, thus, the higher will be the elasticity.