The most important determinant of price elasticity of demand is:
A) the availability of substitutes.
B) the higher the price of the good.
C) the more of the budget that is spent on the good.
D) the longer the time the consumer has to adjust to price changes.

Question

Quizplus · Accepted Answer

The availability of substitutes is the most important determinant of price elasticity of demand because it measures the degree to which consumers can easily switch to a substitute good if the price of the original good increases. If there are many substitutes available, consumers will be more likely to switch to another good if the price increases, making demand more elastic. On the other hand, if there are few substitutes available, consumers will be less likely to switch to another good if the price increases, making demand less elastic. The other factors listed (price level, budget share, and time horizon) can also affect elasticity, but not to the same degree as the availability of substitutes.

The Most Important Determinant of Price Elasticity of Demand Is