Which of the following is a determinant of the price elasticity of demand?

• A. The method of production used by firms
• B. The number of sellers in the market
• C. The level of government taxation
• D. The availability of close substitutes

Answer: (D)

Verified step by step guidance

1. Understand that the price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price.
2. Recall that determinants of price elasticity of demand are factors that influence how sensitive consumers are to price changes.
3. Evaluate each option by considering whether it affects consumers' responsiveness to price changes: the method of production and number of sellers affect supply, not demand elasticity; government taxation affects price but is not a direct determinant of demand elasticity.
4. Recognize that the availability of close substitutes increases consumers' ability to switch to alternatives if the price rises, making demand more elastic.
5. Conclude that among the options, the availability of close substitutes is the correct determinant of the price elasticity of demand.