Question

Which of the following statements about price elasticity of demand is correct?

Select one:

a. The higher the price elasticity of demand, the steeper the demand curve.

b. Inelastic demand implies that there are few close substitutes.

c. Elastic demand implies a firm's high market power.

d. Price elasticity of demand is equal to the slope of the demand curve.

e. The higher a firm's markup, the higher the price elasticity of demand.

Answer 1

Answer (b). Inelastic demand implies that there are few close substitutes.

Explaination:- Demand is price Inelastic when percentage change in price cause a smaller change in percentage change in demand.

If there is slightly increase in price of good having a large number of close subtitutes then it's demand will decrease with greater percentage. It means that Goods with more close subtitutes have price elastic demand.

And, Vice versa

Means goods which have few close subtitutes cause small percentage change in its demand when it's price changes thus, these have price inelastic demand