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

• A. The number of firms in the market
• B. The productivity of labor
• C. The availability of close substitutes
• D. The level of technology used in production

Answer: (C)

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 consumer responsiveness to price changes: the number of firms in the market and productivity of labor relate more to supply, not demand elasticity.
4. Recognize that the availability of close substitutes directly affects demand elasticity because if many close substitutes exist, consumers can easily switch when the price changes, making demand more elastic.
5. Conclude that factors related to production technology do not influence the price elasticity of demand, as they affect supply conditions rather than consumer behavior.