Multiple Choice
Which of the following is most directly affected by a change in the number of buyers in a market?
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4. Elasticity
Determinants of Price Elasticity of Demand
Multiple Choice
Which of the following is a key determinant of the price elasticity of demand for a good?
A
Availability of close substitutes for the good
B
The number of workers employed in the industry producing the good
C
Whether the firm producing the good uses fixed or variable costs
D
The good’s accounting profit in the previous period
Verified step by step guidance1
Understand that the price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price.
Recall that a key factor influencing this responsiveness is how easily consumers can switch to alternative products if the price changes.
Identify that the availability of close substitutes makes demand more elastic because consumers can easily switch to those substitutes when the price rises.
Recognize that factors like the number of workers in the industry, the firm's cost structure, or past accounting profits do not directly affect consumers' sensitivity to price changes.
Conclude that among the options given, the availability of close substitutes is the key determinant of the price elasticity of demand.
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