Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The product is a luxury good
B
The product has many close substitutes
C
Consumer income has decreased
D
The product is considered a necessity
Understanding the Answer
Let's break down why this is correct
Answer
When a product’s price falls and people buy much more of it, the main reason is that the product has a high price elasticity of demand. This means consumers are very sensitive to price changes, so a small drop in price makes the item much more attractive or affordable. As a result, the quantity demanded rises sharply. For example, if a coffee shop lowers its latte price from $4 to $3, many customers will buy more lattes, showing a strong price‑elastic response.
Detailed Explanation
When a product has many close substitutes, a price drop makes it cheaper than alternatives. Other options are incorrect because Luxury goods can have elastic demand, but the key idea here is the presence of substitutes, not the luxury status; Lower income usually makes people buy less of normal goods, not more.
Key Concepts
Price Elasticity of Demand
Substitutes
Consumer Behavior
Topic
Price Elasticity of Demand
Difficulty
easy level question
Cognitive Level
understand
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Question 4In the context of demand and supply, the principle that states that as the price of a good increases, the quantity demanded decreases is known as the law of ______.
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Question 8If the price of a luxury car increases by 10% and the quantity demanded decreases by 15%, what does this indicate about the price elasticity of demand?
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