Read each statement below and indicate if the price elasticity of demand (PED) for the product is most likely to be elastic or inelastic - Leaving Cert Economics - Question 3 - 2013
Question 3
Read each statement below and indicate if the price elasticity of demand (PED) for the product is most likely to be elastic or inelastic. (Tick ✓ the correct box.)
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Worked Solution & Example Answer:Read each statement below and indicate if the price elasticity of demand (PED) for the product is most likely to be elastic or inelastic - Leaving Cert Economics - Question 3 - 2013
Step 1
Consumers are strongly attached and loyal to the product.
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Answer
This statement suggests that consumers have a strong emotional tie to the product, making them less responsive to price changes. Therefore, the price elasticity of demand is likely to be inelastic.
Step 2
Many close substitutes are available for the product.
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Answer
When many substitutes are available, consumers can easily switch to alternatives if the price rises. This implies that demand will be more responsive to price changes, indicating an elastic price elasticity of demand.
Step 3
The product is a luxury product.
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Answer
Luxury products are typically not essential and consumers can forego purchasing them if prices rise. Thus, they are generally considered to have an elastic price elasticity of demand.
Step 4
The product accounts for only a small fraction of a consumer’s weekly expenditure.
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Answer
If a product represents a small portion of a consumer's budget, price changes will likely have little impact on the quantity demanded, leading to an inelastic price elasticity of demand.
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