Compared with the overall market for computers, the elasticity of demand for Gateway computers is likely to be:

Compared with the overall market for computers, the elasticity of demand for Gateway computers is likely to be:

• A. elastic and smaller than the overall elasticity.
• B. inelastic and smaller than the overall elasticity.
• C. inelastic but larger than the overall elasticity.
• D. elastic and larger than the overall elasticity.

Answer: (B)

The main idea is that a single brand within a broad market tends to have a more inelastic demand than the market as a whole. People who are loyal to Gateway or who strongly prefer that brand may continue buying it even when Gateway’s price rises, so the quantity demanded changes relatively little. In contrast, the overall computer market has many close substitutes across brands, so consumers can switch to other brands if prices rise, making market demand more responsive to price changes. So Gateway’s demand is inelastic, and its elasticity magnitude is smaller than the elasticity of the overall market. If Gateway raises its price, Gateway buyers might stay loyal, whereas in the broader market, many consumers would switch between brands, producing a larger overall change in quantity demanded. This aligns with the idea that individual-brand demand is typically less elastic than the market demand.

The main idea is that a single brand within a broad market tends to have a more inelastic demand than the market as a whole. People who are loyal to Gateway or who strongly prefer that brand may continue buying it even when Gateway’s price rises, so the quantity demanded changes relatively little. In contrast, the overall computer market has many close substitutes across brands, so consumers can switch to other brands if prices rise, making market demand more responsive to price changes.

So Gateway’s demand is inelastic, and its elasticity magnitude is smaller than the elasticity of the overall market. If Gateway raises its price, Gateway buyers might stay loyal, whereas in the broader market, many consumers would switch between brands, producing a larger overall change in quantity demanded. This aligns with the idea that individual-brand demand is typically less elastic than the market demand.