Ask AI: If there are more substitutes available for a particular product, the elasticity of demand tends to be higher

Yes, you are correct. When there are more substitutes available for a particular product, the demand for that product tends to be more elastic. This is because consumers have more alternatives to choose from, and they are more likely to switch to a substitute if the price of the original product increases. Here's a bit more detail on why this happens: 1. **Consumer Choice**: With more substitutes available, consumers can easily switch to a different product if the price of the original product goes up. This makes the demand for the original product more sensitive to price changes. 2. **Competition**: When many substitutes are available, companies compete on price as well. If one company raises its prices, consumers can easily switch to a competitor. This competitive pressure keeps prices in check and demand elastic. 3. **Necessity vs. Luxury**: Products with many substitutes are often considered less essential or luxury items. When prices rise, consumers feel less compelled to continue purchasing them when cheaper alternatives exist. In contrast, if few substitutes are available, consumers have fewer alternatives and may be forced to pay higher prices, resulting in more inelastic demand. Examples of products with inelastic demand include essential medications or basic utilities.