Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Demand becomes more elastic as substitutes become available, allowing consumers to switch easily.
B
Demand becomes less elastic because substitutes make the good more desirable.
C
The availability of substitutes has no effect on demand elasticity.
D
Demand is perfectly inelastic when substitutes are available.
Understanding the Answer
Let's break down why this is correct
Answer
The availability of substitutes plays a big role in determining how elastic the demand for a good is. When there are many similar products available, consumers can easily switch to a substitute if the price of the original good goes up. For example, if the price of butter rises, people might buy margarine instead if it's cheaper, showing that the demand for butter is elastic. In public policy, understanding this helps lawmakers make decisions about taxes or regulations; if a product has many substitutes, a tax increase might lead to a large drop in sales. This knowledge helps ensure that policies do not unintentionally harm consumers or businesses.
Detailed Explanation
When there are many substitutes, people can easily switch to another product if the price goes up. Other options are incorrect because This answer suggests that substitutes make a good more desirable, which is not true; This answer misses the point that substitutes do affect demand.
Key Concepts
factors affecting elasticity (substitutability
applications in public policy.
Topic
Understanding Demand Elasticity
Difficulty
medium level question
Cognitive Level
understand
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