Learning Path
Question & Answer
Choose the Best Answer
The product is a luxury good
The product has many close substitutes
Consumer income has decreased
The product is considered a necessity
Understanding the Answer
Let's break down why this is correct
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
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Deep Dive: Price Elasticity of Demand
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Definition
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. It quantifies how much the quantity demanded will change in percentage terms in response to a one percent change in price. Elasticity values help determine the sensitivity of demand to price fluctuations.
Topic Definition
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. It quantifies how much the quantity demanded will change in percentage terms in response to a one percent change in price. Elasticity values help determine the sensitivity of demand to price fluctuations.
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