What effect does the availability of many substitutes have on the elasticity of demand for a good?
Answer (2)
The availability of many substitutes makes the demand for a good more elastic, as consumers can switch to alternatives if prices rise. Substitute goods have positive cross-price elasticities of demand, meaning as one becomes more expensive, consumption of its substitutes increases. A high number of substitutes amplifies the substitution effect, affecting demand elasticity and pricing strategies. ;
The availability of many substitutes makes the demand for a good more elastic, meaning consumers are more likely to switch to alternatives if the price increases. This is due to the positive cross-price elasticity of demand, where an increase in one good's price leads to increased demand for its substitutes. Businesses must be mindful of this relationship when setting prices to remain competitive.
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