Cigarettes and alcohol are often described as having an ‘inelastic price’. What does this mean?
A.
Changes in price will greatly affect how much of the item is bought
B.
Changes in price will not affect how much of the item is bought
C.
The product is subject to high rates of tax
D.
The product is subject to age restrictions
The Answer Is:
B
This question includes an explanation.
Explanation:
Explanation
A product with an ‘inelastic price’ means that consumption doesn’t really depend on how much it costs. So you could increase the price of alcohol and cigarettes and people would tend to still buy them. A product with an elastic price means that a change in price would have a large affect on the number of people who bought the item. See p.95 for more details on price elasticity.
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