Choose the correct word to complete each of the three sentences: 1. The emergenc
ID: 1162315 • Letter: C
Question
Choose the correct word to complete each of the three sentences:
1. The emergence of a new nearly perfect substitute would a) "not enough information", b) "increase", or c) "decrease" the price elasticity of demand.
2. Lengthening the time period under consideration would a) "not enough information", b) "increase", or c) "decrease" the price elasticity of demand.
3. When comparing two products, the product that comprises a larger percentage of the consumers income, all else equal, would have a) "not enough information", b) "higher", or c) "lower" price elasticity of demand.
Explanation / Answer
1. a) Increase the elasticity of demand
Explanation: Goods with close substitutes have more elastic demand. For example. When price of tea increases people will switch to coffee. Availability of substitutes makes it easier to switch.hence demand for such goods are elastic
2. b) Increase the demand
Reason :
Goods have more elastic demand over when time period under consideration is long. Consumer have enough time to look for alternatives. For example, when petrol price is higher , in long run people might move towards public transportation or even green fuels.
3.b. higher price elasticity of demand
Reason : Greater the proportion of income spent on a commodity more is the elasticity of demand for it.