Question

    Elasticity of demand is based on which of the following

    factors?
    A Range of substitutes available Correct Answer Incorrect Answer
    B Joint demand Correct Answer Incorrect Answer
    C Proportion of income spent on the commodity Correct Answer Incorrect Answer
    D All of the above Correct Answer Incorrect Answer

    Solution

    The four factors that affect price elasticity of demand are (1) availability of substitutes, (2) if the good is a luxury or a necessity, (3) the proportion of income spent on the good, and (4) how much time has elapsed since the time the price changed. If income elasticity is positive, the good is normal.

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