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Multiple Choice The elasticity of demand for a product is likely to be greater ________. A....

Multiple Choice

The elasticity of demand for a product is likely to be greater ________.

A. if the product is a luxury rather than an absolute necessity

B. when the proportion of one’s income spent on the product is smaller

C. if the product is an imported good rather than a domestically produced good

D. when the number of substitute products available is smaller

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Answer #1

Price elasticity of demand = (% change in quantity demanded / % change in price)

Price elasticity is greater when the % change in quantity demanded is greater than the % change in price (in absolute terms)

The price elasticity of demand for a product is likely to be greater if the product is a luxury.

A small decrease in the price of luxury good leads to an increase in quantity demand for luxury good by a large percentage.

Answer: Option (A)

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