Multiple Choice
Which of the following factors is most likely to make the demand for a good more price elastic, holding other determinants constant?
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4. Elasticity
Determinants of Price Elasticity of Demand
Multiple Choice
Which of the following factors most directly influences the price elasticity of demand for a product?
A
The availability of close substitutes
B
The amount of advertising for the product
C
The number of sellers in the market
D
The level of government regulation
Verified step by step guidance1
Understand that the price elasticity of demand measures how much the quantity demanded of a product responds to a change in its price.
Recall that one key factor influencing price elasticity is the availability of close substitutes because if many substitutes exist, consumers can easily switch when the price changes, making demand more elastic.
Consider other factors such as advertising, number of sellers, and government regulation, and analyze how directly they affect consumers' sensitivity to price changes compared to substitutes.
Recognize that while advertising, sellers, and regulation can influence demand, they do not directly affect the immediate responsiveness of quantity demanded to price changes as strongly as the availability of close substitutes does.
Conclude that the factor most directly influencing price elasticity of demand is the availability of close substitutes because it determines how easily consumers can switch products in response to price changes.
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