A product with no close substitutes is likely to have price elasticity of demand that is

A product with no close substitutes is likely to have price elasticity of demand that is

• A. higher.
• B. lower.
• C. equal to one.
• D. infinite.

Answer: (B)

When a product has no close substitutes, consumers can’t easily switch to another good if the price rises. That makes quantity demanded respond only modestly to price changes, so the price elasticity of demand is low (inelastic). That’s why the best choice is lower. If the elasticity were higher, there would be easier substitutes or a more flexible demand; if it were equal to one, price changes would cause proportional changes in quantity; if it were infinite, buyers would change quantity to zero with any price change, which isn’t the case when substitutes are lacking.

When a product has no close substitutes, consumers can’t easily switch to another good if the price rises. That makes quantity demanded respond only modestly to price changes, so the price elasticity of demand is low (inelastic). That’s why the best choice is lower.

If the elasticity were higher, there would be easier substitutes or a more flexible demand; if it were equal to one, price changes would cause proportional changes in quantity; if it were infinite, buyers would change quantity to zero with any price change, which isn’t the case when substitutes are lacking.