The demand for Reebok sneakers is more price elastic than the overall demand for shoes because:

• A. Shoes are considered a luxury good while Reebok sneakers are a necessity.
• B. Consumers spend a smaller proportion of their income on Reebok sneakers than on shoes.
• C. Reebok sneakers have more close substitutes than shoes in general.
• D. The market for Reebok sneakers is larger than the market for shoes.

Answer: (C)

Verified step by step guidance

1. Understand the concept of price elasticity of demand, which measures how much the quantity demanded of a good responds to a change in its price. More elastic demand means consumers are more sensitive to price changes.
2. Recall that one key factor affecting price elasticity is the availability of substitutes. When a product has many close substitutes, consumers can easily switch to alternatives if the price rises, making demand more elastic.
3. Compare the market scope: 'shoes' is a broad category with fewer close substitutes within that category, while 'Reebok sneakers' is a narrower category with many close substitutes (other sneaker brands or types).
4. Analyze the options given: Necessity vs. luxury affects elasticity, but here Reebok sneakers are more elastic, so the necessity argument is less relevant. Similarly, spending proportion affects elasticity, but the problem states the opposite.
5. Conclude that the correct reason is that Reebok sneakers have more close substitutes than shoes in general, which increases the price elasticity of demand for Reebok sneakers compared to the overall shoe market.