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A local brewery, due to its budget limitations, produces only one kind of beer and names...

A local brewery, due to its budget limitations, produces only one kind of beer and names it "Best IPA in the World". Economists call this a "narrow" definition of the product and argue that in instances like that, typically, there is

a small number of substitutes and the price elasticity of demand is smaller.

a large number of substitutes and the price elasticity of demand is greater.

a small number of substitutes and the price elasticity of demand is greater.

a large number of substitutes and the price elasticity of demand is smaller.

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Answer #1

The narrower a product market is, higher will be the number of substitutes. If the number of substitutes is large, then price elasticity will also be large as the consumers will easily substitute the good incase of the price increase. For example, chocolate ice-cream has more substitutes than ice cream. Therefore, the elasticity of chocolate ice cream will be higher than the elasticity of ice creams due to the narrow definition. Option b) is the correct answer.

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