Suppose the demand for a good is currently unit elastic over the relevant range. Then a new substitute good is introduced to the market. As a result, demand over that range is now likely to be
A)Unit elastic.
B)Relatively elastic.
C)Relatively inelastic.
D)Perfectly elastic.

Question

Suppose the demand for a good is currently unit elastic over the relevant range. Then a new substitute good is introduced to the market. As a result, demand over that range is now likely to be
A)​Unit elastic.
B)​Relatively elastic.
C)​Relatively inelastic.
D)​Perfectly elastic.

Quizplus · Accepted Answer

Introduction of a substitute good would increase the price elasticity of demand for the existing good as consumers now have an alternative to choose from. This means that consumers are more likely to switch to the substitute good if there is a small increase in the price of the original good. Hence, demand over the relevant range is likely to be relatively elastic.

Suppose the Demand for a Good Is Currently Unit Elastic