Multiple Choice
Which of the following is a determinant of price elasticity of demand in the market for laptop computers?
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4. Elasticity
Determinants of Price Elasticity of Demand
Multiple Choice
Which of the following factors increases the volatility in demand in industrial markets?
A
Short time horizon for buyers to adjust to price changes
B
A low proportion of income spent on industrial goods
C
The availability of close substitutes for industrial inputs
D
Products with few alternative uses
Verified step by step guidance1
Understand that demand volatility refers to how sensitive the quantity demanded is to changes in factors like price or other market conditions.
Recall that when buyers have a short time horizon to adjust to price changes, they cannot easily change their purchasing behavior quickly, which tends to reduce volatility rather than increase it.
Consider that a low proportion of income spent on industrial goods means changes in price have less impact on overall spending, which usually decreases demand volatility.
Recognize that the availability of close substitutes for industrial inputs increases demand volatility because buyers can easily switch to alternatives if prices change, making demand more sensitive.
Note that products with few alternative uses tend to have less volatile demand because buyers cannot easily change how they use the product, reducing sensitivity to price changes.
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