Sort the items below into two main categories: whether demand for each type of good is relatively elastic or relatively inelastic. A.

Sort the items below into two main categories: whether demand for each type of good is relatively elastic or relatively inelastic.
A. Goods that are narrowly defined.
B. Goods on which consumers spend a small share of their budget.
C. Consumers have a long time to adjust to a change in price.
D. Goods that have a large number of available substitutes.
E. Goods that are necessities.

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  1. Answer:

    A. Relatively elastic

    B. Relatively inelastic

    C. Relatively elastic

    D. Relatively elastic

    E. Relatively inelastic

    Explanation:

    Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

    If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes

    Demand is inelastic if there’s little or no change in quantity demanded when the price of the good changes.

    If Consumers have a long time to adjust to a change in price, demand is usually elastic because consumers would have enough time to adjust to price changes. For example, if the price of the good has increased and the consumer has enough time to adjust to the price change, the consumer would have enough time to find cheaper suitable substitutes.

    The elasticity of demand for necessities is usually inelastic because consumers have no choice but to buy the product. For example, water is considered a necessity. If the price of a bottle of water increases, consumers have no choice but to consume water so they would keep buying the bottle of water despite the increase in price.

    Goods that have many substitutes usually have an elastic demand because the good can be easily replaced with the numerous substitutes available.

    Goods on which consumers spend a small share of their budget usually have an inelastic demand. For example, if you earn $500,000 and you usually buy a product for 10 cents and the price increases to 15 cents, you would probably not stop purchasing the product as a result of the price increase since it constitutes a negligible part of your budget.

    Goods that are narrowly defined have an elastic demand. For example, there are many substitutes for bread but there are no subsituites for food.

    I hope my answer helps you

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