Which of the following are three key factors that affect a product's price elasticity of demand?

• A. Tax rates, supply elasticity, and technological change
• B. Advertising expenditure, number of sellers, and consumer preferences
• C. Availability of substitutes, proportion of income spent on the good, and time horizon
• D. Production costs, government regulation, and market structure

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 the main factors that influence price elasticity of demand: availability of substitutes, proportion of income spent on the good, and the time horizon consumers have to adjust their behavior.
3. Analyze why availability of substitutes matters: if many close substitutes exist, consumers can easily switch, making demand more elastic.
4. Consider the proportion of income spent on the good: goods that take up a larger share of income tend to have more elastic demand because price changes significantly affect the consumer's budget.
5. Recognize the role of the time horizon: over longer periods, consumers can find alternatives or adjust habits, increasing elasticity compared to the short run.