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      Question

      Elasticity of demand is based on which of the following

      factors?
      A Range of substitutes available Correct Answer Incorrect Answer
      B Joint demand Correct Answer Incorrect Answer
      C Proportion of income spent on the commodity Correct Answer Incorrect Answer
      D All of the above Correct Answer Incorrect Answer

      Solution

      The four factors that affect price elasticity of demand are (1) availability of substitutes, (2) if the good is a luxury or a necessity, (3) the proportion of income spent on the good, and (4) how much time has elapsed since the time the price changed. If income elasticity is positive, the good is normal.

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