Asked by Jonique Smith on Jul 14, 2024
Verified
Phil's filling station gas station operates on a patch on the highway in a patch where there were no gas stations close by.It enjoyed high profits.After a while,Glen's gas another gas station opened up close by.The profits for the first gas station are likely to decrease because
A) it has to lower prices,since its product is now more price elastic
B) It has to lower prices since its product is now more price inelastic
C) due to the increased availability of substitutes
D) both A&C
Price Elastic
Price elasticity refers to the degree to which the quantity demanded of a good or service changes in response to a change in its price.
Availability of Substitutes
The presence of alternative products or services that can satisfy the same needs or wants as the original product.
- Understand the role of substitutes and complements in evaluating demand elasticity.
- Appreciate the significance of market share in affecting a product's price elasticity.
Verified Answer
DM
Daniel MartinJul 15, 2024
Final Answer :
D
Explanation :
Phil's filling station's profits are likely to decrease because it has to lower prices since its product is now more price elastic due to the increased availability of substitutes, which is Glen's gas station. This increased competition makes consumers more sensitive to price changes, as they now have an alternative option.
Learning Objectives
- Understand the role of substitutes and complements in evaluating demand elasticity.
- Appreciate the significance of market share in affecting a product's price elasticity.