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CMA Foundation · Fundamentals of Business Economics and Management · Theory of Demand and Supply

Which of the following goods is most likely to have a relatively inelastic demand in the short run?

Life-saving medicine with no alternative has the most inelastic demand. It is a necessity, has no close substitutes and cannot be postponed, so quantity hardly responds to price. Branded ice cream, holiday packages and restaurant meals have many substitutes or are luxuries, making demand more elastic.

  1. AA particular brand of ice cream with many close substitutes
  2. BLife-saving medicine with no alternative for a patientCorrect
  3. CForeign holiday packages
  4. DRestaurant meals with several competing outlets

Explanation

Demand is inelastic where goods are necessities, have few or no close substitutes and consumers cannot postpone purchase. Life-saving medicine meets all of these. The other options are luxuries or have many substitutes, so consumers can easily switch or cut purchases when prices change.

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