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Question
How does the availability of substitutes of a commodity affect its price elasticity of demand?
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Solution
The price elasticity of demand for goods depends on the availability of substitutes in the market. The more substitutes available, the higher the price elasticity of demand for that good. This is because when prices change, buyers can easily shift from one substitute to another.
RELATED QUESTIONS
Explain the effect of the following on the price elasticity of demand of a commodity:
(i) Number of substitutes
(ii) Nature of the commodity
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Stock
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