CA Foundation · Business Economics · Theory of Demand and Supply
Which of the following is generally likely to make the demand for a commodity more price elastic?
A longer time period for adjustment makes demand more price elastic. Given more time, consumers can discover substitutes and alter their habits. Necessities without substitutes, goods with a tiny share of the budget, and habit-forming goods generally have inelastic demand.
- AThe commodity is a necessity with no close substitutes
- BThe commodity takes a very small share of the consumer's income
- CA longer time period is available for consumers to adjust to the price changeCorrect
- DThe commodity is habit-forming
Explanation
With more time, consumers can find substitutes and change their consumption patterns, so demand becomes more elastic over the long run. Necessities, goods with a negligible share of income, and habit-forming goods all tend to have inelastic demand.
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