Which of the following statements is true?

A. The longer any price change persists, the greater the elasticity of demand.

B. The closer the substitutes for a particular commodity and the more substitutes there are, the more inelastic will be its price elasticity of demand.

C. The smaller the share of a person's total budget that is spent on a commodity, the greater that person's price elasticity of demand is for that commodity.

D. The demand for necessities is likely to be elastic, while the demand for luxuries is likely to be inelastic.

Question

Business

Aileen Elliott

27 August, 22:51

Which of the following statements is true?

A. The longer any price change persists, the greater the elasticity of demand.

B. The closer the substitutes for a particular commodity and the more substitutes there are, the more inelastic will be its price elasticity of demand.

C. The smaller the share of a person's total budget that is spent on a commodity, the greater that person's price elasticity of demand is for that commodity.

D. The demand for necessities is likely to be elastic, while the demand for luxuries is likely to be inelastic.

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Answers (1)

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Atlas · Answer 1

The correct answer is option A.

Explanation:

If a price change persists for a long period, the consumers will be able to adjust to the price change. This will make the demand relatively elastic.

If there are a lot of very close substitutes for a product its demand will be relatively elastic. This is because consumers always prefer a cheaper substitute.

If the share of a product in a person's budget is smaller, a change in the price of that product won't have a greater effect on the budget. This will make the demand for the product relatively elastic.

The demand for necessities is likely to be inelastic because it is a necessary item while the demand for luxuries will be inelastic because their consumption is not necessary.