Which of the following is correct regarding the "elasticity of demand with respect to price"?

Question

BlackTom AI · Accepted Answer

Price elasticity of demand (PED) is defined as the percentage change in quantity demanded divided by the percentage change in price: PED = (%ΔQd) / (%ΔP). If |PED| > 1 demand is elastic (consumers responsive to price changes); if |PED| < 1 demand is inelastic.

Key concepts and determinants: availability of close substitutes is a primary determinant of PED. More substitutes make consumers more willing to switch when price changes, increasing elasticity. Other determinants include necessity vs. luxury, proportion of income, and time horizon.

Step-by-step reasoning:
1. International trade increases the number and variety of foreign suppliers and products available in a market. That raises the number of close substitutes for domestic goods.
2. With more substitutes, a given price increase for one supplier leads a larger fraction of consumers to switch to alternatives, so the percentage fall in quantity demanded for that supplier is larger for the same percentage price change.
3. Using the PED formula, a larger |%ΔQd| for the same |%ΔP| produces a larger absolute value of PED — i.e., demand becomes more elastic.

Illustrative calculation:
- Without trade: suppose a 10% price increase causes quantity demanded to fall 12%. PED = 12% / 10% = 1.2 (elastic).
- With trade (more substitutes): the same 10% price increase might cause quantity demanded to fall 25%. PED = 25% / 10% = 2.5 (more elastic).
These intermediate steps show how increased substitution raises the elasticity number.

Why the correct answer is correct: International trade increases substitute availability and competition, so consumers are more price-sensitive — hence demand becomes more elastic.

Why other typical alternatives are incorrect: Statements claiming demand becomes less elastic or unchanged ignore the substitution effect and increased competition from imports. Claims that elasticity only changes for luxuries are too restrictive; substitution affects many product types.

Conclusion: The correct answer is: The demand becomes more elastic due to international trade.

Which of the following is correct regarding the "elasticity of demand with respect to price"? 单项选择题

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