Question

According to a study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at 0.45. Which of the following could explain why the price elasticity of demand for toothpaste is so low

Answer 1

Answer:

D) There are few close substitutes for toothpaste.

Explanation:

Products that have a very low price elasticity (inelastic) ten d to be basic necessities and/or products that do not have many substitutes. For example, gasoline's demand is very inelastic since it is a basic necessity and its only substitute product is diesel (electric cars represent less than 1% of total cars, so electricity is not even a competitor).

The three main toothpaste brands in the US are Crest, Colgate and Sensodyne. Both Crest and Colgate are manufactured by Procter and Gamble, and GlaxoSmithKline manufactures Sensodyne. So there is really not very much competition since 8 out of 10 top toothpaste brands belong to the same company (P&G).