Question

State whether the price elasticity of demand is inelastic, relatively elastic, highly elastic or highly inelastic. Give reasons to support your answer.

Salt

Answer 1

The price elasticity of demand is highly inelastic.

Reasons:

• Absolute Necessity: It is an essential food item with no close substitutes, so even if costs rise, customers will continue to consume it.
• Tiny Budget Share: It consumes a small percentage of a household's total income, so price fluctuations are virtually unnoticed.