Suppose the demand for a good is currently unit elastic over the relevant range. Then the producer of a substitute good goes out of business and stops producing it. As a result, demand over that range is now likely to be
A)Unit elastic.
B)Relatively elastic.
C)Relatively inelastic.
D)Perfectly inelastic.

Question

Suppose the demand for a good is currently unit elastic over the relevant range. Then the producer of a substitute good goes out of business and stops producing it. As a result, demand over that range is now likely to be
A)​Unit elastic.
B)​Relatively elastic.
C)​Relatively inelastic.
D)​Perfectly inelastic.

Quizplus · Accepted Answer

With the absence of the substitute good, consumers may have fewer choices and options for fulfilling their wants and needs. Therefore, they may be more likely to continue purchasing the original good even if the price increases slightly. This makes demand relatively inelastic, rather than unit elastic or relatively elastic. However, it is unlikely to be perfectly inelastic as there may still be some substitution possibilities, although limited.

Suppose the Demand for a Good Is Currently Unit Elastic