Question

Consider some determinants of the price elasticity of demand: • The availability of close substitutes• Whether the good is a necessity or a luxury• How broadly you define the market• The time horizon being consideredA good without any close substitutes is likely to have relatively inelastic/elastic demand, since consumers cannot easily switch to a substitute good if the price of the good rises.A good’s price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand?a. Diamond necklaceb. Amputation procedures for diabetes sufferers

Answer 1

Answer:

Inelastic demand, Amputation procedure

Explanation:

The good with no close substitute is likely to experience inelastic demand because the consumer does not any close substitute to change to, this means that even when price is increased, the consumer is not likely to stop buying if the good is a necessary good.

The Amputation procedure will have least elastic demand because the diabetes sufferer does not have close substitute to change to when price increase while Diamond necklace is a luxury good, when the price is increased the consumer stop buying or switch to other luxury goods such as gold, silver that are equally used for decoration purposes.