The elasticity of demand for Gateway computers is probably:

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

Answer: (D)

The idea being tested is how the price sensitivity of demand differs between a specific brand and the overall market. A brand like Gateway sits among many close substitutes from other computer brands. When price rises, many buyers can switch to Dell, HP, Apple, or others, so Gateway’s quantity demanded responds strongly to price changes. That strong response means the brand’s demand is elastic (absolute value of elasticity greater than 1). Because the broader computer market encompasses a wider set of substitutions and options, its price sensitivity tends to be less dramatic than that of a single brand, so Gateway’s elasticity is likely larger than the market’s. Therefore, Gateway computers’ demand is elastic and larger than the elasticity of demand for computers overall.