Question

1.

What information does price elasticity provide?

How does product substitution affect specific decisions?

Answer 1

Price elasticity tells about the elasticity of demand when there is changes in the prices of the product .it shows the relationship between quantity demanded and it price.it shows the inverse relationship between price and quantity demand of a good.

Formula

Price elasticity demand = % change in quantity demanded / % change in price

Basically it gives about information of elasticity of product.

The substitue goods affect demand elasticity.when there is too many substitue good are available then goods become highly elastic.and due to this a small change in price can divert the demand for buying another substitue goods.when no substitue are available then there will less impact on change in price of goods.

Like soda .if soda prices is increases then consumer will buy another substitue.

It also depend upon close substitue availability when close substitue are available the demand become highly sensitive.