Question

other things being equal if a good has many substitutes then the price elasticity of demand is A.large B. Smaller C. Zero D. Unity

Answer 1

Considering that all other factors are kept constant and the scenario is as following:

- number of substitutes rise against the PED

then the PED will be large.

So correct option is A

Explanation:

The more possible substitutes present for a given good or service, the greater the elasticity.

When several close substitutes are available, consumers can easily switch from one good to another even if there is only a small change in price.

Thanks for asking.

I hope my answer was helpful for you.

Answer 2

Other things being equal if a ‘good has many substitutes’ then the ‘price elasticity of demand’ is large.

Option: A

Explanation:

• The elasticity will be large for goods which have many substitutes. The ‘price elasticity’ of demand is calculated by the changes in the number of goods to the changes in the ‘price of the good’.  

• The factors that make the price more elastic are the close substitutes of the goods available at a comparable price.  

• The more ‘possible substitutes’ present for a given ‘good or service’, the greater is the level of elasticity.  

• In this manner the with the availability of close substitutes the consumers can easily ‘switch from one good to another’ even if there is only a ‘small change in price’.

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