Homework Answers
A monopolist sells a unique good that have no close substitutes.
However, there are substitutes for the good of the monopolist as well. These substitutes may be imperfect but nevertheless they are distant substitutes.
Therefore,
The price elasticity of demand for a good produced by a monopolist does not equal zero because there will always be some substitutes, however imperfect they may be.
Hence, the correct answer is the option (D).
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5. Determinants of the price elasticity of demand Consider some determinants of the price elasticity of...
5. Determinants of the price elasticity of demand
Consider some determinants of the price elasticity of
demand:
• The availability of close substitutes
• Whether the good is a necessity or a luxury
• How broadly you define the market
• The time horizon being considered
A good with many close substitutes is likely to have relatively
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5. Determinants of the price elasticity of demand
Consider some determinants of the price elasticity of
demand:
• The availability of close substitutes
• Whether the good is a necessity or a luxury
• How broadly you define the market
• The time horizon being considered
A good with many close substitutes is likely to have relatively
__(Elastic, Inelastic)___ demand since consumers can easily choose
to purchase one of the close substitutes if the price of the good
rises.
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