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      Question

      If customers perceive no difference between competing

      banks, price elasticity becomes:
      A Low Correct Answer Incorrect Answer
      B Zero Correct Answer Incorrect Answer
      C High Correct Answer Incorrect Answer
      D Negative Correct Answer Incorrect Answer
      E Irrelevant Correct Answer Incorrect Answer

      Solution

      When differentiation is low, customers are more sensitive to price changes. Why others are incorrect: Low elasticity occurs when strong differentiation exists; Zero and negative unrealistic here; Irrelevant incorrect. Banking Example: Switching banks for slightly higher savings rate.

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