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Question
How does the availability of substitutes of a commodity affect its price elasticity of demand?
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Solution
The price elasticity of demand for goods depends on the availability of substitutes in the market. The more substitutes available, the higher the price elasticity of demand for that good. This is because when prices change, buyers can easily shift from one substitute to another.
RELATED QUESTIONS
How does change in the price of complementary good affect the demand for the given good? Explain with the help of an example.
Explain the effect of the following on the price elasticity of demand of a commodity:
(i) Number of substitutes
(ii) Nature of the commodity
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| Group 'A' | Group 'B' |
| (a) Demand and price | (1) wages |
| (b) Perfectly elastic supply | (2) Vertical supply curve |
| (c) Land | (3) Transfer income |
| (d) Unemployment allowance | (4) Horizontal supply curve |
| (e) Reserve Bank of India | (5) Inverse relation |
| (6) Rent | |
| (7) 1935 | |
| (8) Direct relation |
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Stock
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When will the demand curve be parallel to x-axis?
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