A good that has a lot of substitutes, that is a luxury and is relatively inexpensive will most likely have a price elasticity of demand that is a. a little higher than 1 b. closer to 10 c. a little lower than 1 d. exactly 1

The answer is A.

Explanation:

The price elasticity of demand is a little higher than 1.

This means it is price elastic. That is, the demand is sensitive to price. Why? -

1. The good has a lot of substitutes, meaning the bargaining power of buyers is high. Any increase in the price of the good will lead to customers switching to the substitutes.

2. Also, the good is also a luxury good and not a necessity. Luxury goods, unlike necessity goods are not essential. So an increase in price might see customers moving away.

If a demand is inelastic to price, price elasticity of demand will be less than one.