Which of the following is a determinant of the price elasticity of demand for a product? I. The existence of substitute goods
II) The percentage of a consumer's total budget devoted to purchases of that commodity
A) I only
B) II only
C) both I and II
D) neither I nor II

Question

Quizplus · Accepted Answer

Both the existence of substitute goods (I) and the percentage of a consumer's total budget devoted to purchases of that commodity (II) are determinants of the price elasticity of demand for a product. When there are more substitutes available for a product, the demand becomes more elastic (responsive to changes in price). Similarly, if the product makes up a larger portion of a consumer's budget, the demand becomes more elastic as they may look for cheaper alternatives when the price increases. Therefore, both I and II affect the price elasticity of demand.

Which of the Following Is a Determinant of the Price