Multiple Choice
Which of the following is NOT generally considered a determinant of the price elasticity of demand for a good?
1
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4. Elasticity
Determinants of Price Elasticity of Demand
Multiple Choice
Why might the demand curve for luxury handbags be more elastic than the demand curve for insulin?
A
Because insulin is typically heavily regulated and subsidized by governments so its price changes do not affect demand, whereas handbags face more international competition.
B
Because luxury handbags are nonessential goods with many close substitutes and purchases can be delayed, while insulin is a life‑saving necessity with few or no substitutes, making insulin demand highly inelastic.
C
Because consumers often view handbags as inferior goods whose demand falls rapidly when prices rise, whereas insulin is viewed as a normal good and so demand is steadier.
D
Because production costs for handbags fluctuate more than for insulin, so handbag demand responds more to price changes while insulin demand remains stable.
Verified step by step guidance1
Step 1: Understand the concept of price elasticity of demand, which measures how much the quantity demanded of a good responds to a change in its price. A demand curve is more elastic if consumers significantly reduce quantity demanded when price rises, and more inelastic if quantity demanded changes little with price changes.
Step 2: Identify the nature of the goods in question. Luxury handbags are nonessential goods, meaning consumers can delay purchases or choose alternatives if prices rise. Insulin, on the other hand, is a life-saving necessity with very few or no substitutes.
Step 3: Recognize that goods with many close substitutes tend to have more elastic demand because consumers can easily switch to alternatives when prices change. Luxury handbags have many substitutes (other brands, styles, or even not buying), while insulin has almost none.
Step 4: Consider the urgency and necessity of the good. Since insulin is essential for survival, consumers will buy it regardless of price changes, making its demand highly inelastic. Luxury handbags do not have this urgency, so demand is more sensitive to price.
Step 5: Conclude that the demand curve for luxury handbags is more elastic because they are nonessential with many substitutes and flexible purchase timing, whereas insulin’s demand is inelastic due to its necessity and lack of substitutes.
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