How does the existence of substitutes affect the price elasticity of demand?A) The existence of substitutes leads to higher prices in the marketplace.B) If there are many substitutes, the price elasticity of the good is more elastic.C) The existence of substitutes leads to a situation with perfect elasticity.D) The existence of substitutes makes the price elasticity of demand inelastic.

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15-11-2019
Business

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How does the existence of substitutes affect the price elasticity of demand?A) The existence of substitutes leads to higher prices in the marketplace.B) If there are many substitutes, the price elasticity of the good is more elastic.C) The existence of substitutes leads to a situation with perfect elasticity.D) The existence of substitutes makes the price elasticity of demand inelastic.

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Answer:

B) If there are many substitutes, the price elasticity of the good is more elastic.

Explanation:

Price elasticity of demand measures how quantity demanded changes when price level changes.

If there are subsituites for a good, the demand for the good tends to be more elastic - a small change in price leads to a greater change in quantity demanded.

Suppliers would be less motivated to increase prices if there are many close substitutes for its goods.

I hope my answer helps you.