Choose the correct word to complete each of the three sentences: The emergence o
ID: 1162309 • Letter: C
Question
Choose the correct word to complete each of the three sentences:
The emergence of a new nearly perfect substitute would (SELECT THE CORRECT WORD) a) "not enough information", b) "increase", or c) "decrease" the price elasticity of demand.
Lengthening the time period under consideration would (SELECT THE CORRECT WORD) a) "not enough information", b) "increase", or c) "decrease" the price elasticity of demand.
When comparing two products, the product that comprises a larger percentage of the consumers income, all else equal, would have a (SELECT THE CORRECT WORD) a) "not enough information", b) "higher", or c) "lower" price elasticity of demand.
Explanation / Answer
The emergence of a new nearly perfect substitute would increase the price elasticity of demand. Availability of substitutes will increase the elasticity of demand.
Lengthening the time period under consideration would increase the price elasticity of demand. When there are lengthy time periods people can change their taste and prefrences so the elasticity of demand is elastic.
When comparing two products, the product that comprises a larger percentage of the consumers income, all else equal, would have a higher price elasticity of demand. When the good comprises large proportion of income then that good is considered a luxury good and is elasticity is higher.