a good with many close substitutes is likely to have relativelyelastic demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.

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13-09-2022
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a good with many close substitutes is likely to have relativelyelastic demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.

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rafikiedu09 rafikiedu09 · Answer 1 · 2022-09-17T10:54:51+02:00

Because customers may easily choose to purchase one of the near replacements if the price of the product increases, a good with several close substitutes is likely to have somewhat elastic demand. The sensitivity of customers to price changes is measured by the price elasticity of demand.

Because demand for one product rises as the price for the substitute good rises, the cross elasticity of demand for substitute goods is always positive. In contrast, the demand for complementary items has a negative cross-elasticity.
Since it is simpler for customers to transfer from one product to another, goods with near substitutes typically have more elastic demand. Margarine and butter, for instance, may be readily swapped out. The demand for an item with near replacements will be elastic, whereas the demand for a commodity without close substitutes will be inelastic.
Let's take the scenario where the cost of a candy decreases from Rs. 10 to Rs. 5 and the demand grows from Rs. 10 to Rs. 15 for the candy. Here, 50% divided by 50% equals 1, meaning that the percentage change in demand is equal to the percentage change in price.

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