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Which of the following statements is correct? A
Which of the following statements is correct?
A. The demand for salt is very elastic.
B. The demand for luxuries is less elastic than the demand for necessities.
C. The demand for a narrowly defined good is less elastic than the demand for a more broadly defined good.
D. The larger the proportion of income spent on a good, the smaller the elasticity of demand.
E. The demand for New Balance shoes is more elastic than the demand for shoes in general.
Expert Solution
Answer: E
The more narrowly defined a good is, the more elastic its demand is. This is because there are less substitutes the broader you define a good. In the case of answer E, New Balance shoes is a more narrowly defined version of shoes in general. People can easily by other brands of shoes if the price of New Balance shoes rises. People though don't have many other substitutes for shoes unless you like walking barefoot.
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