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Which of the following would cause a demand curve for a good to be price inelastic? a. There are a great number of substitutes for the good. b. The good is a necessity. c. The good is a luxury. d. The good is inferior.

Ask by Rose Little. in the United States
Jan 27,2025

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Answer

The demand curve is price inelastic when the good is a necessity.

Solution

To determine which factor causes a demand curve for a good to be **price inelastic**, let's analyze each option: a. **There are a great number of substitutes for the good.** - **Effect:** **Elastic Demand** - **Reason:** When many substitutes are available, consumers can easily switch to alternative products if the price of the good rises, making the demand more sensitive to price changes. b. **The good is a necessity.** - **Effect:** **Inelastic Demand** - **Reason:** Necessities are essential goods that consumers need regardless of price changes. As a result, the quantity demanded doesn't decrease significantly when prices rise, leading to inelastic demand. c. **The good is a luxury.** - **Effect:** **Elastic Demand** - **Reason:** Luxuries are non-essential goods, and consumers are more likely to reduce their consumption if prices increase, making the demand more sensitive to price changes. d. **The good is inferior.** - **Effect:** **Varies (Generally Elastic or Inelastic)** - **Reason:** Inferior goods are those for which demand increases when consumer income decreases. The price elasticity of inferior goods can vary and is not inherently inelastic or elastic. **Conclusion:** The factor that causes a demand curve to be **price inelastic** is: **b. The good is a necessity.** **Answer:** b. The good is a necessity.

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A demand curve for a good would be price inelastic if the good is considered a necessity. Necessities, such as basic food items, medicine, or fuel, are essential for daily living, meaning that consumers will purchase them regardless of price changes. This steadiness in demand, even when prices rise, results in a steep demand curve. Additionally, when considering why necessities tend to be price inelastic, it's interesting to note that consumers often adjust their budgets to accommodate essential items. This means they may cut back on non-essential spending first, further demonstrating the strong demand for necessary goods, which remains relatively constant despite price fluctuations.

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