Multiple Choice
Which of the following factors most directly influences the price elasticity of demand for a product?
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4. Elasticity
Determinants of Price Elasticity of Demand
Multiple Choice
Which of the following are three key factors that determine the price elasticity of demand for a product?
A
Tax rates, supply elasticity, and technological change
B
Production costs, government regulation, and market structure
C
Availability of substitutes, proportion of income spent on the good, and time horizon
D
Advertising expenditure, number of sellers, and consumer preferences
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 key factors influencing price elasticity of demand include how easily consumers can switch to substitutes, which affects their sensitivity to price changes.
Consider the proportion of income spent on the good, since goods that take up a larger share of income tend to have more elastic demand.
Recognize the importance of the time horizon, as demand usually becomes more elastic over a longer period because consumers have more time to adjust their behavior.
Evaluate the given options by matching these key factors—availability of substitutes, proportion of income spent, and time horizon—to identify the correct answer.
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