Which of the following factors is most likely to make the demand for a good more price elastic, holding other determinants constant?

• A. The good has many close substitutes available.
• B. The good is a necessity with no close substitutes.
• C. Consumers have very little time to adjust their purchasing decisions.
• D. The good takes a small share of the consumer's budget.

Answer: (A)

Verified step by step guidance

1. Understand the concept of price elasticity of demand, which measures how much the quantity demanded of a good responds to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
2. Recall that the availability of close substitutes is a key determinant of price elasticity. When many close substitutes exist, consumers can easily switch to alternatives if the price of the good rises, making demand more elastic.
3. Consider the nature of the good: necessities tend to have inelastic demand because consumers need them regardless of price changes, especially if no close substitutes are available.
4. Evaluate the time consumers have to adjust their behavior. More time generally increases elasticity because consumers can find alternatives or change habits, while very little time reduces elasticity.
5. Analyze the budget share of the good. Goods that take a small share of the consumer's budget tend to have inelastic demand because price changes have less impact on overall spending.