Which factor increases the price elasticity of demand?

The availability of substitutes significantly increases the price elasticity of demand because when consumers have more alternatives to choose from, they are more likely to switch to those substitutes if the price of the original good increases. This responsiveness to price changes reflects a higher elasticity since consumers can easily find other options that satisfy their needs at a lower cost.

In contrast, when goods are necessities, the demand tends to be more inelastic since consumers will continue to purchase them regardless of price changes. Similarly, defining a market narrowly or regarding a good as a small share of the budget can also lead to inelastic demand, as consumers may not feel significant pressure to change their purchasing habits in those situations. Understanding these dynamics helps clarify why the availability of substitutes serves as a key determinant in making demand more elastic.