Good X has few close substitutes and makes up a small share of a buyer's income. The demand for good X is _____ , and a seller of good X that wants to increase total revenue should _____ price.
A) unit elastic; increase
B) inelastic; increase
C) elastic; decrease
D) elastic; increase

Question

Quizplus · Accepted Answer

Goods with few close substitutes tend to have inelastic demand because consumers have fewer alternatives and are thus less sensitive to price changes. If a good also constitutes a small share of a buyer's income, the impact of a price change on purchasing behavior is further minimized, reinforcing inelastic demand. For inelastic goods, increasing the price can lead to an increase in total revenue, as the percentage drop in quantity demanded is less than the percentage increase in price.

Good X Has Few Close Substitutes and Makes Up a Small