Multiple Choice
Which of the following are three key factors that affect a product's price elasticity of demand?
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4. Elasticity
Determinants of Price Elasticity of Demand
Multiple Choice
Which of the following is NOT a determinant of the price elasticity of demand for a particular good?
A
The proportion of income spent on the good
B
The cost of production for the good
C
The availability of close substitutes
D
The time period considered
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 the common determinants of price elasticity of demand, which typically include: the availability of close substitutes, the proportion of income spent on the good, and the time period considered.
Analyze each option to see if it directly affects consumers' responsiveness to price changes. For example, the availability of close substitutes makes demand more elastic because consumers can switch easily.
Consider the proportion of income spent on the good: if a good takes up a large share of income, demand tends to be more elastic since price changes significantly impact the consumer's budget.
Recognize that the cost of production is related to the supply side, not the demand side, and therefore is NOT a determinant of the price elasticity of demand.
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