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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
consider a consumer’s demand for some broadly defined product such as bread. There really are no close substitutes for the category bread, which includes all types from French bread to pita bread to tortillas and so on. So, if the price of all bread were to rise, perhaps a consumer would purchase a little less of it each week, but probably not a significantly smaller amount. Now, however, consider that the consumer’s demand for a particular baker’s specialty bread instead of the category “bread” as a whole. Surely, there are close substitutes for Baker Bob’s Whole Wheat Bread with Sesame Seeds than for bread in general. We would expect, then, that the demand for Baker Bob’s special loaf is much more elastic than for the entire category of bread. This fact is why the demand faced by an individual wheat farmer is much more elastic than the entire market demand for wheat; there are much closer substitutes for her wheat than for wheat in general.
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4.1. Own-Price Elasticity of Demand
uld tend to purchase much less of this good and switch to the substitute, which is now relatively less costly. If there simply are no substitutes, however, then it is likely that the demand is much less elastic. To understand this more fully, <span>consider a consumer’s demand for some broadly defined product such as bread. There really are no close substitutes for the category bread, which includes all types from French bread to pita bread to tortillas and so on. So, if the price of all bread were to rise, perhaps a consumer would purchase a little less of it each week, but probably not a significantly smaller amount. Now, however, consider that the consumer’s demand for a particular baker’s specialty bread instead of the category “bread” as a whole. Surely, there are close substitutes for Baker Bob’s Whole Wheat Bread with Sesame Seeds than for bread in general. We would expect, then, that the demand for Baker Bob’s special loaf is much more elastic than for the entire category of bread. This fact is why the demand faced by an individual wheat farmer is much more elastic than the entire market demand for wheat; there are much closer substitutes for her wheat than for wheat in general. In finance, there exists the question of whether the demand for common stock is perfectly elastic. That is, are there perfect substitutes for a firm’s common shares? If so,


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