A product with many substitutes tends to have higher elasticity than a product with few substitutes.

A product with many substitutes tends to have higher elasticity than a product with few substitutes.

• A. True
• B. False
• C. Cannot determine
• D. Always unitary

Answer: (A)

Having many close substitutes makes demand more price elastic because buyers can easily switch to alternatives when price changes. Elasticity of demand measures how sensitive quantity demanded is to price changes. When there are many substitutes, a price increase prompts buyers to switch to other products, causing a larger drop in quantity demanded; a price decrease attracts buyers from substitutes, increasing quantity demanded. This means the demand responds strongly to price changes, i.e., it is highly elastic. Conversely, if there are only a few substitutes, switching options is harder, so quantity demanded shifts less with price changes, yielding lower elasticity. The statement reflects this relationship, so it is true. The idea of unitary elasticity would require a precise 1:1 percentage response that isn’t determined by the number of substitutes alone.

Having many close substitutes makes demand more price elastic because buyers can easily switch to alternatives when price changes. Elasticity of demand measures how sensitive quantity demanded is to price changes. When there are many substitutes, a price increase prompts buyers to switch to other products, causing a larger drop in quantity demanded; a price decrease attracts buyers from substitutes, increasing quantity demanded. This means the demand responds strongly to price changes, i.e., it is highly elastic. Conversely, if there are only a few substitutes, switching options is harder, so quantity demanded shifts less with price changes, yielding lower elasticity. The statement reflects this relationship, so it is true. The idea of unitary elasticity would require a precise 1:1 percentage response that isn’t determined by the number of substitutes alone.