CA Foundation · Business Economics · Theory of Demand and Supply
Which of the following goods is most likely to have the lowest price elasticity of demand for a typical Indian household?
Iodised salt has the lowest price elasticity because it is a necessity, has few close substitutes and costs a tiny share of household income, so buyers hardly change consumption when its price changes. Branded biscuits, restaurant meals and foreign holidays all have substitutes or are postponable, making demand more elastic.
- AA particular brand of packaged biscuits
- BIodised saltCorrect
- CRestaurant meals on weekends
- DForeign holiday packages
Explanation
Iodised salt is a necessity with no close substitutes and takes a very small share of household income, so quantity demanded barely responds to price changes. Branded biscuits have many substitutes, and restaurant meals and foreign holidays are luxuries with elastic demand.
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