Question

Which of the following statements is true?

1. The more time that passes the more inelastic the demand for a product becomes.
2. The more narrowly we define a market, the more elastic the demand for a product will be.
3. In general, if a product has few substitutes it will have an elastic demand.
4. The demand curve for a necessity is more elastic than the demand curve for a luxury.

Answer 1

Answer: The more narrowly we define a market, the more elastic the demand for a product will be.

Explanation: Narrowly defined markets tend to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly defined goods.

For example, a broad category of food, has a fairly inelastic demand because there are no good substitutes for food while Vanilla flavoured ice cream, a very narrow category, has a very elastic demand because other flavors of ice cream (e. g Chocolate) are perfect substitutes for vanilla.

Answer 2

Answer: The correct answer 2). The more narrowly we define a market, the more elastic the demand for a product will be.

Explanation: A narrowly defined market tends to have narrow demand for goods and services. This is true because a narrrowly defined market will give room for goods of close substitutes.