Question:
The price elasticity of demand for a good will typically be high when a good is
(1) a small share of consumer expenditure and is a complement of other goods.
(2) a necessity and perishable.
(3) a small share of consumer expenditure and is a substitute to other goods.
(4) a large share of consumer expenditure and is a substitute for other goods.
(5) an inferior and is a complement to other goods.
Correct Answer:
(4)
Answer Explanation:
Demand is highly elastic (responsive to price changes) when a good consumes a large portion of a buyer’s budget (making them sensitive to price hikes) and when there are many close substitutes available (making it easy to switch away if the price rises).
Topic: Elasticity Year: 2024
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