The narrower the definition of a product

The narrower the definition of a product:

The correct answer and explanation is:

Correct Answer: A. the smaller the number of substitutes and the smaller the price elasticity of demand.

Explanation:

Price elasticity of demand (PED) measures how much the quantity demanded of a product responds to a change in its price. A key factor influencing PED is the availability of substitutes. When consumers have many alternatives, they can easily switch to another product if the price increases, making demand more elastic. Conversely, if there are few substitutes, consumers have little choice but to continue purchasing the product despite price changes, making demand inelastic.

When defining a product narrowly, it refers to a specific brand or version of a product rather than a broad category. For example, instead of considering “soft drinks” as a whole, a narrower definition would be “Coca-Cola Original.” The narrower the definition, the fewer substitutes exist within that category. While a person can switch from soft drinks to fruit juices if soft drinks become expensive, they may find it harder to substitute Coca-Cola with another drink if they are loyal to the brand.

As a result, the demand for narrowly defined products tends to be less elastic because fewer alternatives exist within that specific definition. If the price of Coca-Cola rises, some loyal consumers may continue purchasing it despite the higher price, demonstrating inelastic demand. On the other hand, broadly defined categories such as “soft drinks” have more substitutes, making their demand more elastic.

Thus, the correct answer is option A, as a narrower product definition leads to fewer substitutes and, consequently, lower price elasticity of demand.