Question

Which of the following causes the price elasticity of demand for a good to be more inelastic?

		A shorter period of time to adjust to a change in price.
		A higher ratio of price to consumers' income.
		The availability of many substitutes.
		The good is a luxury.

Answer 1

Price elasticity of demand for a good is more inelastic in the short run, because consumers have little time to adjust their quantity demanded with the sudden change in price. However, demand becomes elastic over time (i.e. in long run) when consumers become able to adjust with the price change.

Demand is also elastic when the good is luxury(with increase in price consumers tend to decline their quantity demanded because it's Not a necessary for them to buy the good), ratio of price to consumers income is high(price of the good is too high that the consumer needs to spend most of his income on the good in order to buy it. So, demand is elastic), and there are many substitutes available for the product(with increase in price, consumers switch to other cheap substitutes available to them).

Answer- option A