Question

Which of the following causes demand to be more elastic with respect to price?

	A.	Shorter periods of time to adjust to a change in price
	B.	A steeper demand curve for a given price and quantity
	C.	Fewer substitutes
	D.	A high ratio of price to income

Answer 1

C. Fewer Substitutes.

Explanation: The demand for any commodity not only depends upon its price but also the prices of its substitute goods.

If there are large number of substitute available in the market there would be substitution effects, not a elasticity with respect to price.

If there is only few number of substitute in the market, people will tends to buy same commodity only. Demand for single goods will increase, if fall in price and vice versa, because now there is only limited choice, ie.Fewer Substitute. Hence this is the ultimate effect, which will leads to more elasticity with respect to price.

While a steeper demand curve shows , when there is huge fall in price, and less change in demand. I.e relatively inelastic demand curve.

And, A high ratio of price to income means expending ratio is more, as the ratio goes on increasing consumer demand will decrease as there is Increases in ratio price to income. This is an adverse effect, with respect to elasticity of demand and price.