If there are few substitutes for a product, then the demand will be?

Question

A ) If there are few substitutes for a product, then the demand will be...

unitary elastic

relatively more inelastic

relatively more elastic

perfectly elastic

B) If coffee has an elasticity of demand equal to -1.48, an increase in the price of coffee will result in ?

increase in the firm's revenue

decrease in the firm's revenue

not change the firm's revenue

any of the above

I am not getting the answer right for these two.. also if u can explain the answer why .. it would be nice to understand the conecpt.. Many Thanks

Answer 1

A)  If there are few substitutes, the price will  be:

relatively more inelastic.  

An inelastic price curve is one in which the price of a product does little to influence the quantity demanded.  In other words, if you raise the price people will not necessarily buy much less and if you lower the price, people will not buy much more.  Think of diapers, gasoline, and some medicines.  If people need them, they will buy them until they run out of money.  If they don't need them, they won't buy much extra just because its cheap.

B) The equation for marginal revenue is:

MR = price * (1+Ed)/(Ed)

so if Ed <-1 ( your case -1.48)   (1 +Ed) / Ed  must be <0  and therefore MR goes down when price goes up (a positive times a negative is a negative) and MR goes up when price goes down (a negative times a negative is a positive).  So at an Ed of -1.48, a price increase will cause a MR decrease.

Answer 2

do you need a subsititute sugar