When a good has few close substitutes readily available: When a good Elasticity cannot be measured. Price tends to remain the same, regardless of quantity demanded. Quantity demanded is not nearly as responsive to a change in price. Proportional changes in quantity demanded tend to be greater than proportional changes in price.
The Correct Answer and Explanation is :
The correct answer is: Quantity demanded is not nearly as responsive to a change in price.
When a good has few close substitutes readily available, the price elasticity of demand for that good tends to be inelastic. This means that the quantity demanded is less sensitive to changes in price. The absence of close substitutes means consumers have limited options to switch to other goods, making them more willing to purchase the good even if the price increases.
Here’s why:
Price elasticity of demand (PED) measures how much the quantity demanded of a good changes in response to a change in price. If a good has many substitutes, the demand tends to be more elastic, as consumers can easily switch to alternatives when the price changes. However, when substitutes are few or unavailable, consumers are less likely to change their purchasing behavior when prices increase. They are more likely to continue buying the product, even if it becomes more expensive, because they have fewer alternatives.
This inelastic behavior results in a situation where quantity demanded does not change significantly when prices rise or fall. For instance, necessities such as basic utilities (electricity, water) or medical services may have few substitutes, so price increases may not result in a large decrease in the amount demanded.
In contrast, when a good is highly elastic (i.e., when there are many substitutes), even small price changes can lead to large changes in the quantity demanded. This is why products like luxury goods or non-essential items, which have more substitutes, tend to see greater fluctuations in demand when prices change.
Overall, when a good has few close substitutes, its demand is relatively inelastic, and changes in price do not significantly impact the quantity demanded.