A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. From these facts, we would expect that the demand for Good A would be _, while that of Good B would be .
A) elastic; elastic also
B) inelastic; inelastic also
C) elastic; inelastic
D) inelastic; elastic

Question

Quizplus · Accepted Answer

The demand for Good A is elastic because it has many close substitutes, making consumers more sensitive to price changes. The demand for Good B is also elastic because it constitutes a significant portion of families' budgets, leading to greater sensitivity to price changes.

A Firm Produces and Sells Two Goods, a and B