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Chapter 4: Problem 4

Good A has 10 substitutes, and good B has 20 substitutes. The demand is more likely to be elastic for which good? Explain your answer.

Short Answer

Expert verified
The demand is more likely to be elastic for Good B because it has more substitutes (20) as compared to Good A (10). Greater the number of substitutes, higher is the elasticity of demand.

Step by step solution

01

Identify the number of substitutes

The question provides the number of substitutes for each good. Good A has 10 substitutes and Good B has 20 substitutes.
02

Understand the Effect of Substitutes on Elasticity of Demand

The elasticity of demand is directly related to the number of substitutes. This means that the higher the number of substitutes, the higher the elasticity of demand.
03

Determine Which Good Has More Elastic Demand

Since Good B has 20 substitutes, which is more than Good A's 10 substitutes, Good B's demand is more likely to be elastic because consumers have more alternatives or substitutes for Good B. Therefore, a change in the price of Good B is likely to cause a more significant change in the quantity demanded for Good B.

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