Question

Consider some determinants of the price elasticity of demand: . The availability of close substitutes Product's share of the consumer's total budget A good with many close substitutes is likely to have relatively substitutes if the price of the good rises demand, since consumers can easily choose to purchase one of the close The price elasticity of demand for a good depends on the price of the good relative to consumers' incomes. Which of the following goods has the most elastic demand? O Car O Swing set O Coffee Shoes

Answer 1

1.

• A good with many close substitutes is likely to have relatively elastic demand, since consumer's can easily chosen to purchase one of the close substitutes if the price of the good rises.
• A good is said to have an elastic demand if it's price elasticity of demand is greater than 1.
• When the price elasticity of demand is greater than one then it means that when the price of one good rises, the demand for its close substitute also rises and people usually prefer buying those substitute goods with lower prices.

2. Option A.

• The car has the most elastic demand among all.
• People usually purchase goods which is affordable by them with their current incomes.
• When their income is low, they usually refrain themselves from purchasing highly expensive goods and services and just prefer buying basic necessities.
• But when their income rises, they prefer purchasing more costly luxurious and costly goods which becomes more affordable with Increase in the income.
• Hence Car is considered as a luxury good that is affordable when the income of the consumers rises.