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Questions and Answers
What is the most important factor determining the price elasticity of demand for a commodity?
If a commodity has many close substitutes available, what is likely to happen to its demand when the price increases?
How does the availability of substitutes impact the price elasticity of demand?
What would happen to the demand for a commodity if it does not have any substitutes available?
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Why does the article mention that Campa Cola's demand is elastic?
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How does a decrease in price for Campa Cola affect consumer behavior according to the text?
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What is the primary reason that the demand for Campa Cola is elastic?
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Why is the demand for common salt inelastic?
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Which of the following factors determines the elasticity of demand for a commodity?
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How does the number of uses of a commodity affect its price elasticity of demand?
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What is the likely reason for the demand for cloth in India being elastic, according to the text?
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Based on the information provided, which of the following commodities is likely to have an inelastic demand?
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Study Notes
Price Elasticity of Demand
- The primary factor determining price elasticity of demand is the availability of close substitutes for the commodity.
- When a commodity has many close substitutes, an increase in its price typically leads to a decrease in its demand as consumers switch to other options.
Impact of Substitutes
- The availability of substitutes makes demand more elastic since consumers can easily replace the product if prices rise.
- A commodity with no substitutes will generally experience constant demand regardless of price changes, indicating inelastic demand.
Campa Cola Case Study
- Demand for Campa Cola is considered elastic due to the presence of numerous alternatives in the market.
- A decrease in the price of Campa Cola likely leads to a significant increase in consumer purchases, reflecting its elastic nature.
- The primary reason for the elasticity of Campa Cola's demand is the strong competition and variety of substitute drinks available.
Inelastic Demand Examples
- Common salt demonstrates inelastic demand since it has few substitutes and is a necessity for consumers.
Factors Influencing Elasticity
- Various factors determine elasticity, including the number of substitutes, necessity vs luxury status, and the percentage of income spent on the good.
- The number of uses for a commodity can enhance its elasticity; a product with multiple uses is more likely to see varied consumer response to price changes.
Specific Market Insights
- The high elasticity of demand for cloth in India may be attributed to numerous available substitutes, cultural variations, and varying cloth uses.
Inelastic Product Identification
- Based on the context, essential products with little to no substitutes, such as common salt, are likely to exhibit inelastic demand.
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Description
Test your knowledge on the factors that determine the price elasticity of demand for a commodity. Learn about the availability of substitutes, consumer's income proportion, number of uses of a commodity, complementarity between goods, and the impact of time on elasticity.
