The price elasticity of demand will be larger in absolute value if
A)expenditure on the good represents a smaller proportion of the consumer's total expenditure
B)we define the good more broadly
C)we define the good more narrowly
D)the number of substitutes is smaller
E)the number of consumers is larger

Question

Quizplus · Accepted Answer

When we define the good more narrowly, it means that we are considering a more specific product, which usually has a smaller number of substitutes. Therefore, if the price of this specific product changes, the consumers will have fewer options to switch to, making their demand less responsive to the price change. This results in a smaller absolute value of the price elasticity of demand. On the other hand, if we define the good more broadly, the consumers will have more substitutes in the market, making their demand more sensitive to the price change and resulting in a larger absolute value of the price elasticity of demand.

The Price Elasticity of Demand Will Be Larger in Absolute