Scenario 5.1
The demand for noodles is given by the following equation: Q = 20 - 4P + 0.2I - 2P x . Assume that P = $8, I = 200, and P x = $10.
-Everything else held constant, the greater the number of close substitutes there are for a good, the smaller the price elasticity of demand for that good.

Question

Quizplus · Accepted Answer

The presence of more close substitutes for a good actually makes the price elasticity of demand for that good larger, not smaller, because consumers can more easily switch to alternatives if the price of the good increases.

Scenario 5.1 The Demand for Noodles Is Given by the Following Equation