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Question 10: Demand for a product tends to be price inelastic if:
A. The product is considered a luxury item.
B. Few good complements for the product are available.
C. People spend a large share of their income on the product.
D. Few good substitutes are available for the product.
Correct Answer: D
Explanation:
Choice "d" is correct. Demand for a product tends to be price inelastic if few good substitutes are
available
for the product. Even if price increases, consumers are then unable to switch to substitute goods,
because there aren't any.
Choice "a" is incorrect. Luxury items may have good substitutes available.
Choice "b" is incorrect. Complementary goods are those whose demand fluctuates in unison;
substitute
goods are more relevant here.
Choice "c" is incorrect. If consumers spend a large share of their income on the product, they will be
very
sensitive to any price changes and hence product demand would be more "elastic."
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