In microeconomics, which set correctly lists three key determinants of a product’s price elasticity of demand?

• A. The inflation rate, the unemployment rate, and the central bank’s policy interest rate
• B. Number of sellers in the market, the firm’s accounting costs, and the marginal product of labor
• C. Availability of close substitutes, share of the consumer’s budget spent on the good, and time horizon to adjust consumption
• D. The slope of the supply curve, the level of technology, and economies of scale

Answer: (C)

Verified step by step guidance

1. Understand that price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price.
2. Recall that key determinants of price elasticity of demand include factors that influence consumers' sensitivity to price changes.
3. Identify that the availability of close substitutes makes demand more elastic because consumers can easily switch to alternatives if the price rises.
4. Recognize that the share of the consumer’s budget spent on the good affects elasticity; goods that take up a larger portion of the budget tend to have more elastic demand.
5. Consider the time horizon to adjust consumption, as demand is usually more elastic over the long run because consumers have more time to find alternatives or change habits.