CA Foundation · Business Economics · Theory of Demand and Supply
Which one of the following goods is most likely to have the LOWEST price elasticity of demand in the short run?
Life-saving medicine with no substitute has the lowest price elasticity. Patients must buy it whatever the price, there is no alternative and purchase cannot be postponed. Brands with many substitutes, leisure meals and foreign holidays are easier to cut back or replace, so demand is more elastic.
- AA particular brand of biscuits with many close substitutes
- BLife-saving medicine with no substitute for a patientCorrect
- CRestaurant meals eaten out for leisure
- DForeign holiday packages
Explanation
Demand is inelastic for necessities with no close substitutes and low scope for postponement. Life-saving medicine fits this. Brand-specific goods, leisure dining and foreign holidays are luxuries or have many substitutes, so their demand is more elastic.
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