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Other things being equal, which characteristic tends to make the demand for a commodity more price elastic?
AAvailability of close substitutes for it
BIt being an essential necessity of life
CIt taking a tiny share of the budget
DIt being consumed out of fixed habit
Answer & Solution
Correct answer: A. Availability of close substitutes for it
1. Determinants of price elasticity include substitutes, budget share, nature of need, and habit.
2. Necessities, tiny budget shares, and fixed habits all make demand inelastic.
3. Goods with close substitutes have highly elastic demand, since buyers can switch.
4. So availability of close substitutes makes demand more elastic.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit I "Law of Demand and Elasticity of Demand", p.27_
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