Marketing SmartBook Practice Test

The price elasticity of demand rises when there are many substitutes because consumers can switch to alternatives if the price goes up. Elasticity measures how much quantity demanded changes in response to a price change. When close substitutes are readily available, a small price increase prompts a relatively large drop in quantity demanded as buyers move to other options, making demand more elastic. For example, if the price of a popular beverage rises, people can choose other drinks instead, leading to a bigger percentage decrease in the quantity demanded. If substitutes were scarce, buyers would have fewer alternatives and would respond less to price changes, resulting in lower elasticity. Thus, with many substitutes, the demand is more elastic.