Question

A good that is a necessity, that is inexpensive and that has very few substitutes is likely to have a price elasticity of demand that is

A) Highly inelastic

B) Highly elastic

C) Unitary elastic

D) Slightly inelastic

Answer 1

Answer) A good that is a necessity, that is inexpensive and that has very few substitutes is likely to have a price elasticity of demand that is highly inelastic. This is because high-priced goods are often highly elastic, because if prices fall, consumers are likely to buy at a lower price. Compared to necessity goods, luxury items are highly elastic. Goods with many substitutes are elastic because as the price of the good rises, consumers shift purchases to the substitute items.