Multiple Choice
A change in the number of buyers is a determinant of which of the following market variables?
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4. Elasticity
Determinants of Price Elasticity of Demand
Multiple Choice
Which of the following lists includes key determinants of the price elasticity of demand for a good?
A
The legal form of the firm, the stock market capitalization of producers, and the country’s exchange rate regime
B
Availability of close substitutes, share of income spent on the good, and time horizon for consumers to adjust
C
The firm’s accounting profit, the number of employees in the industry, and the good’s production technology
D
The good’s color options, the seller’s brand name, and the location of the firm’s headquarters
Verified step by step guidance1
Step 1: Understand what price elasticity of demand measures—it quantifies how much the quantity demanded of a good responds to a change in its price.
Step 2: Identify the key factors that influence this responsiveness. These typically include the availability of close substitutes, because if many substitutes exist, consumers can easily switch, making demand more elastic.
Step 3: Consider the share of income spent on the good. Goods that take up a larger portion of a consumer's budget tend to have more elastic demand since price changes significantly affect purchasing decisions.
Step 4: Take into account the time horizon for consumers to adjust. Over longer periods, consumers can find alternatives or change habits, increasing elasticity.
Step 5: Evaluate the given options against these determinants to select the list that correctly includes these key factors.
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