A government agency calculates the price elastiity of demand for fish using the

Question

A government agency calculates the price elastiity of demand for fish using the dollar amount per unit of fish (Price) and how many units of fish are produced each day (Quantity). Suddenly, it decides to use the dollar amount per unit of tuna fish (Price) and how many units of tuna fish are produced each day (Quantity) instead. This change will: All might be correct depending on the type of market structure Increase the price elasticity of demand (as calculated by that government agency) Leave the price elastiáty of demand unchanged(as alculated by that government agency Decrease the price elastiaty of demand (as calculated by that government agency) None are correct

Explanation / Answer

Correct option is (2).

The broader (narrower) a product's scope, the lower (higher) its elasticity of demand, and the more inelastic (elastic) the good. Since tuna is a category of fish, it is narrower in scope. Therefore, when "fish" is the good in question, demand is more inelastic, but when "tuna fish" is the good in question, demand is more elastic. Price elasticity of demand will increase.

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