The more substitutes available for a product,

The more substitutes available for a product,

• A. The larger is its income elasticity of demand.
• B. The smaller is its income elasticity of demand.
• C. The smaller is its price elasticity of demand.
• D. The larger is its price elasticity of demand.

Answer: (D)

When many close substitutes exist for a product, consumers can switch to other goods easily in response to a price change. This makes their quantity demanded respond more strongly to price changes, so the price elasticity of demand is higher (more elastic). Income changes, on the other hand, affect demand through buyers’ purchasing power, not through the availability of substitutes, so the number of substitutes doesn’t directly determine income elasticity. This is why the statement about more substitutes aligns with a larger price elasticity of demand—the measure of how sensitive quantity demanded is to price.

When many close substitutes exist for a product, consumers can switch to other goods easily in response to a price change. This makes their quantity demanded respond more strongly to price changes, so the price elasticity of demand is higher (more elastic).

Income changes, on the other hand, affect demand through buyers’ purchasing power, not through the availability of substitutes, so the number of substitutes doesn’t directly determine income elasticity. This is why the statement about more substitutes aligns with a larger price elasticity of demand—the measure of how sensitive quantity demanded is to price.