Question

A reference value involves a. comparing the costs and benefits of items from one particular manufacturer or distributor. b. products with which a consumer is familiar and items the consumer has not seen or used before.c. items of equal or greater value. d. substitute items.

Answer 1

Complete Question:

A reference value involves comparing the costs and benefits of?

Answer:

d. substitute items.

Explanation:

A price elasticity of demand can be defined as a measure of the responsiveness of the quantity of a product demanded with respect to a change in price of the product, all things being equal.

Mathematically, the price elasticity of demand is given by the formula;

$Price \; elasticity \; of \; demand = \frac {Percentage \; change \; in \; price}{Percentage \; change \; in \; demand}$

The demand for goods is said to be elastic, when the quantity of goods demanded by consumers with respect to change in price is very large. Thus, the more easily a consumer can switch to a substitute product in relation to change in price, the greater the elasticity of demand.

Generally, consumers would like to be buy a product as its price falls or become inexpensive.

Hence, a reference value involves comparing the costs and benefits of items substitute items.

A substitute item can be defined as a product (item) that a consumer sees as an alternative to another product (item) and as such would offer similar benefits or satisfaction to the consumer.

For substitute products (items), the cross-price elasticity of demand is always positive because the demand of a product increases when the price of its close substitute (alternative) increases.