When does CMA 1293 1-30 product demand become more elastic?
A - Greater the number of substitute products available.
B - Greater the consumer income.
C - Greater the elasticity of supply.
D - Higher the input costs.
A. as much as there is substitute products then it will be much easier for the consumer to convert to a substitute product when the price of the main product is higher than the consumer income
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Kokab Rahman , Managing Director, Head of Business Development , Radeya Business Services http://www.radeya.biz
A - Greater the number of substitute products available. Elasticity of demand shows how demand is affected by various factors. The more elastic demand is, the more it is affected by price. So when price goes up, demand for items with a higher elasticity of demand decreases and when price goes up, demand for such items goes down. When an item has many substitute, its elasticity of demand is greater because consumers can shift to other products if the price of one of these goes up. Example of substitutable items are : tea and coffee. If the price of tea goes up, people will stop buying tea and start buying more coffee. On the other hand, items with a lower elasticity of demand don't respond to price as much. Items with fewer or no substitutes have a lower elasticity of demand. Also, necessities tend to have a low elasticity of demand and luxury items tend to have a higher elasticity of demand.
