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Main content
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Video transcript

we are asked which of the following describes a good that is likely to have the most elastic demand choose one answer so pause this video and see if you can answer that alright so the first choice right over here they talk about a luxury with many substitutes so we already talked about when we're dealing with substitutes if there's a lot of substitutes that makes the quantity demanded very sensitive to price so this would make it more elastic to have many substitutes more elastic and then the fact that it's a luxury it's not something that people need this would also make quantity more sensitive to price generally so we would also say more elastic so this is looking like a good candidate but let's check the other options here a necessity with few substitutes well this is the opposite if it's a necessity this would be more inelastic or less elastic less elastic and few substitutes if you have a change in price for that thing people say well I still have to buy that thing I can't substitute it with other things this would also be less elastic and remember we're looking for the most elastic demand so we can rule this one out a broadly defined good such as food well we just talked about that if we're talking about food and that there was a price change in food well we need food so our quantity demanded might would not likely change or a percent change in quantity would not likely be that much this would be fairly inelastic rule that one out goods that make up a small share of the budget well this goes back to that example with bubblegum if bubblegum goes from 25 cents to 30 cents we might not care so much versus if a car goes from $25,000 to $30,000 so the small things that we might not care about price changes so much if we don't care so much about price changes that would imply less elasticity so that definitely would not be the most elastic demand goods that have to be bought under a short time constraint well a good example is that it's raining and people need umbrellas right now and you know the next 5-10 minutes and they're they might they wouldn't necessarily be so sensitive to price so this is going to be less elastic and so once again we would rule this out if we had a long time frame well then people might be able to shop around for substitutes and then things might get a little bit more elastic they would be more sensitive to price so we definitely like in this scenario choice a
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