Other Things Constant, the Price Elasticity of Demand for a Product

question 120

Multiple Choice

Other things constant, the price elasticity of demand for a product will be smaller (more inelastic) if:

• A) people spend a large share of their income on the product.
• B) people spend an insignificant share of their income on the product.
• C) the population in the market area is large.
• D) there are many good substitutes for the product.

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Definitions:

Variance

A statistical measure of the dispersion of returns for a given security or market index, indicating the degree of volatility.

Portfolio Diversification

The practice of investing across different financial assets to reduce risk by spreading exposure.

Systematic Risk

The risk inherent to the entire market or market segment, which cannot be reduced through diversification.

Total Risk

The complete range of risks involved in an investment, encompassing both systematic and unsystematic risks.