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What's wrong with the following statement? The demand for goods that are basic necessities of life...

What's wrong with the following statement? The demand for goods that are basic necessities of life tends to be price elastic.

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Answer #1

It is just the opposite of the reality. The demand for goods that are a basic necessity is price inelastic.

Price elasticity means the demand for the good change more in response to a change in the price. IF the price changed by 10% the demand will change by 15%, making it more elastic. BUt the goods which are basic necessity doesn't change wilt price because people will need them at any cost. For example salt, petrol etc.

If the price of the salt changed the demand will not change much making it price inelastic. So, the goods that are basic necessities of life tend to the price inelastic.

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