Suppose a study shows that the price elasticity of demand for Goodyear tires is

Question

Suppose a study shows that the price elasticity of demand for Goodyear tires is more elasticity of demand for all tires. What could be a likely explanation for this? The price elasticity of demand for Goodyear tires could be more elastic than the price elasticity of demand for all tires because Goodyear tires are more broadly defined. Goodyear tires are more less costly. Goodyear tires are more of a necessity. Goodyear tires are consumed over a shorter period of time. Goodyear tires are close substitutes.

Explanation / Answer

The price elasticity of demand for Goodyear tires could be more elastic than the price elasticity of demand for all tires because of:-

Answer:- Option E. [Goodyear tires have more close substitutes.]

Explanation:- Demand for those commodities which have substitutes (for example tea has its substitute in coffee, orange juice has its substitute in lime juice etc.) are relatively more elastic. The reason being that when the price of commodity falls in relation to its substitute, the consumers will go in for it and so its demand will increase.

Conclusion:- The price elasticity of demand for Goodyear tires could be more elastic than the price elasticity of demand for all tires because goodyear tires have more close substitutes. [Option E)

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