Other things equal, if a good has more substitutes, its price elasticity of demand is

Larger
Smaller
Zero
Unity

The correct answer is A. Larger.

Price elasticity of demand is a measure of how responsive consumers are to changes in the price of a good. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

A good with more substitutes will have a higher price elasticity of demand. This is because consumers have more options available to them, so they are more likely to switch to a different good if the price of one good increases.

For example, if the price of coffee increases, consumers may switch to tea or hot chocolate. This is because these goods are substitutes for coffee.

On the other hand, a good with few substitutes will have a lower price elasticity of demand. This is because consumers have fewer options available to them, so they are less likely to switch to a different good if the price of one good increases.

For example, if the price of insulin increases, diabetics are less likely to switch to a different medication. This is because there are few other medications that can be used to treat diabetes.

In conclusion, other things equal, if a good has more substitutes, its price elasticity of demand is larger.

Exit mobile version