What is considered a factor that affects the elasticity of demand?

The availability of substitutes is a significant factor that affects the elasticity of demand because it influences how easily consumers can switch between different products in response to price changes. When there are close substitutes for a product, consumers are more likely to reduce their quantity demanded if its price increases, as they can easily turn to alternative products. This results in a higher price elasticity of demand, meaning demand is more responsive to price changes.

For example, if the price of butter rises and there are readily available substitutes like margarine or oils, consumers can quickly switch to these alternatives, leading to a significant drop in the quantity demanded for butter. Conversely, if a product has few or no substitutes, demand tends to be more inelastic, as consumers have limited options and are less likely to decrease their quantity demanded when prices rise.

The other factors, while they may influence demand in various ways, do not directly relate to how readily consumers can find substitutes for a product when prices change. Average household income affects overall purchasing power and demand levels but does not indicate how sensitive the quantity demanded is to price changes. Production cost primarily influences supply rather than demand elasticity. Market competition can impact pricing strategies but does not specifically determine individual product demand elasticity as significantly as the availability of substitutes.