Question

2. Price elasticity of demand would be larger / smaller for a necessity than for a luxury. Elasticity of demand would be larger / smaller in the short run than in the long run. Elasticity of demand increases/ decreases when substitutes become available. Elasticity of demand would be larger / smaller for table salt than for paper towels.

Answer 1

Price elasticity of demand would be smallerfor a necessity than for a luxury, the reason being that a change in price will not affect the demand of a necessity much. Elasticity of demand would be smaller in the short run than in the long run. The demand changes are seen more in the long run and in the short run very small variation may be seen. Elasticity of demand increases when substitutes become available. With more and more substitutes becoming available, the consumers will now have more to choose from and a change in price will lead to the shift of consumers to a variety of available products in the market. Elasticity of demand would be smaller for table salt than for paper towels, the reason behind this may be the no of uses of each product. The higher the no of uses the higher elasticity of the product will be there.