In: Economics
Which of the following statements about the price elasticity of demand is correct? Select one:
a. All of the above are correct.
b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes.
c. The price elasticity of demand for a good measures the willingness of buyers of the good to move away from the good as its price increases.
d. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y.
Solution:-
Statement that is correct about the price elasticity of demand :
Other things equal, if good x has close substitute and good y does not have close substitute , then the demand for good x will be more elastic than the demand for good y.
Availability of substitutes is the most important factor in determining price elasticity of demand . If for a commodity close substitutes are available, its demand tends to be elastic. If price of such a commodity goes up , the people will shift to it's close substitutes and as a result the demand for that commodity will greatly decline. The greater the possibility of substitution , the greater the price elasticity of demand for it.
Therefore option (d) is correct.