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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

A life-saving medicine without any close substitutes will tend to have

a. a small elasticity of demand.

b. a large elasticity of demand.

c. a small elasticity of supply.

d. a large elasticity of supply.

To determine
Demand elasticity and substitute.

Answer

Option ‘a’ is the correct answer.

Explanation

Option (a):

Lower the availability of substitute, lesser will be the elastic demand. This is because if the price of the good were to increase, people are left with little or no choice but to pay the higher price for it. Since life saving medicine has no close substitute and it has smaller demand elasticity. Thus, option ‘a’ is correct.

Option (b):

More the availability of substitute, more elastic the demand will be. Since life saving medicine has no close substitute, it does not have larger demand elasticity. So option ‘b’ is incorrect.

Option (c):

More the availability of substitute, more elastic the demand will be, and it does not affect elasticity of the supply. So option ‘c’ is incorrect.

Option (d):

More the availability of substitute, more elastic the demand will be, and it does not affect elasticity of the supply. So option ‘d’ is incorrect.

Concept

Concept Introduction:

Elasticity of demand: It measures how much quantity demanded responds to the changes in the price or income.

Substitutes: Substitute goods: Substitute goods are those goods that can be used for the same purpose.

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