Question

State whether the following statement is true or false. Give valid reasons in support of your answer.
The coefficient of price elasticity of demand for the commodity is inversely related to the number of alternative uses of the commodity.

Options

• True

• False

Answer 1

The statement 'The coefficient of price elasticity of demand for the commodity is inversely related to the number of alternative uses of the commodity' is False.  

A commodity that can be used for different purposes (such as milk) will have elastic demand. This is because if the price of this commodity increases, then it will be used only for important purposes leading to a drastic fall in demand. Thus, the demand for such goods is highly responsive to price. On the contrary, a good that has limited usage will have an inelastic demand.