ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a smaller proportion of income being spent on the product
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more substitutes coming onto the market
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the product becoming more of a necessity
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the product falling in price
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Detailed explanation-1: -The availability of alternatives or substitute goods can affect demand elasticity. 1 Hence, the demand for goods or services with many substitutes is highly price elastic; a small increase in the price levels of goods causes consumers to buy its substitutes.
Detailed explanation-2: -The four factors that affect price elasticity of demand are (1) availability of substitutes, (2) if the good is a luxury or a necessity, (3) the proportion of income spent on the good, and (4) how much time has elapsed since the time the price changed.
Detailed explanation-3: -It means that a small rise in the price of the good would cause a greater fall in its quantity demanded as the buyers would switch to its substitutes. Hence, the demand for a product is more price elastic if more substitutes are available in the market.