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

• A. The number of firms in the market
• B. The availability of close substitutes
• C. The level of government taxation
• D. The total income of all producers

Answer: (B)

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 include factors that affect consumers' sensitivity to price changes, such as the availability of close substitutes, necessity versus luxury nature of the good, proportion of income spent on the good, and time period considered.
3. Analyze each option: the number of firms in the market affects supply, not demand elasticity; government taxation influences price but is not a direct determinant of demand elasticity; total income of producers relates to supply side, not demand elasticity.
4. Recognize that the availability of close substitutes makes consumers more responsive to price changes because they can easily switch to alternatives, increasing the price elasticity of demand.
5. Conclude that among the given options, the availability of close substitutes is the correct determinant of the price elasticity of demand.