Which factor tends to increase the price elasticity of demand for a good?

Which factor tends to increase the price elasticity of demand for a good?

• A. The good has many close substitutes
• B. The good is a luxury with no substitutes
• C. The good is a necessity
• D. The good has no substitutes

Answer: (A)

Having many close substitutes makes demand more elastic because buyers can switch to a different good if the price rises. When there are many good alternatives, a small price increase prompts a relatively large drop in the quantity demanded as consumers move to the substitutes, boosting elasticity. By contrast, a luxury with no substitutes still faces limited switching options, often making demand less responsive; a necessity is typically inelastic because people still need to buy it regardless of price; and having no substitutes similarly trims responsiveness since there are few or no alternatives. So the presence of many close substitutes is the factor that tends to increase price elasticity of demand.

Having many close substitutes makes demand more elastic because buyers can switch to a different good if the price rises. When there are many good alternatives, a small price increase prompts a relatively large drop in the quantity demanded as consumers move to the substitutes, boosting elasticity. By contrast, a luxury with no substitutes still faces limited switching options, often making demand less responsive; a necessity is typically inelastic because people still need to buy it regardless of price; and having no substitutes similarly trims responsiveness since there are few or no alternatives. So the presence of many close substitutes is the factor that tends to increase price elasticity of demand.