1)State true or false and justify your answer: One of the most important factors in determining whether or not the demand for a product is elastic or inelastic is whether or not substitutes for it exist

1)

True.

The more the product substitutes, the more the demand is elastic. An example of elastic commodities is cereals. Increase in prices of the brand of cereal would result to decrease in demand of the cereal if their close substitute failed to follow suit and maintained their cost. Increase or decrease in demand is affected by the changes in the price of the product, especially if the substitutes are available. In inelastic commodities are scarce, and they do not have substitutes to replace with easily. In case there is a slight change in the product's cost, for instance, 2% changes, the amount of products supplied or demanded will experience less than 2% change. An example of an inelastic product is salt. Human beings need a specific quantity of salt. Too little or too much is likely to result in illness. So the change in prices generally causes a very slight change in demand.

2)

Here, the statement given in the question is TRUE.

Mathematically,

PED (Price Elasticity of Demand) = % Change in the quantity demand / % Change in the price.

Hence, PED deals with both the price and quantity demanded.