Which of the following is a key determinant of the price elasticity of demand for a good?

• A. The cost of production for the seller
• B. The level of government taxation on the good
• C. The availability of close substitutes
• D. The number of buyers in the market

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 key determinants of price elasticity of demand include factors that affect consumers' sensitivity to price changes.
3. Analyze each option: the cost of production affects supply, not demand elasticity; government taxation influences price but is not a direct determinant of demand elasticity; the number of buyers affects market size but not elasticity per se.
4. Focus on the availability of close substitutes, which makes consumers more responsive to price changes because they can easily switch to alternatives, increasing elasticity.
5. Conclude that the availability of close substitutes is a key determinant of the price elasticity of demand because it directly influences how sensitive consumers are to price changes.