Explain why the number of substitutes influences the price elasticity of demand
What will be an ideal response?
The price elasticity of demand is a measure of how responsive the quantity demanded is to a change in price. If a good has many substitutes, it is easy to switch away from it when its price rises. Hence a rise in price will substantially decrease the quantity demanded. Similarly, when its price falls, consumers can switch into it and away from many other (substitute) products. Hence a fall in price will substantially increase the quantity demanded. Because changes in price have major effects on the quantity demanded, the demand is elastic.
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If the null hypothesis states H0 : E(Y) = µY,0, then a two-sided alternative hypothesis is
A) H1 : E(Y) ? µY,0. B) H1 : E(Y) ? µY,0. C) H1 : < µY,0. D) H1 : E(Y) > µY,0.
If the axes in the model for the monetary policy reaction curve are the real interest rate (vertical axis) and the rate of inflation (horizontal axis), then the monetary policy reaction curve would:
A. have a zero slope. B. have a negative slope. C. have a positive slope. D. be vertical.