Suppose two goods are perfect substitutes. The price elasticity of demand of one of the goods is
A) 0.
B) 1.
C) 10.
D) infinity.

Question

Quizplus · Accepted Answer

If two goods are perfect substitutes, consumers will switch from one to the other without any loss of utility. This means that the price elasticity of demand for each good will be infinite, as any increase in price will cause consumers to switch to the other good completely. Therefore, the price elasticity of demand for one of the goods is D) infinity.

Suppose Two Goods Are Perfect Substitutes