Question

Which of the following correctly describes the relationship between availability of substitutes and price elasticity of demand?

Options

• More substitutes lead to elastic demand, while fewer substitutes result in inelastic demand.

• Fewer substitutes lead to elastic demand, while more substitutes result in inelastic demand.

• The availability of substitutes has no effect on price elasticity of demand.

• All goods have the same elasticity regardless of substitutes available.

Answer 1

More substitutes lead to elastic demand, while fewer substitutes result in inelastic demand.

Explanation:

More substitutes allow consumers to switch products easily when prices rise, making demand elastic.