Define the concept of price elasticity of demand and describe how an increase in the number of substitute products affects the price elasticity of demand of a good.
A price elasticity of demand is the measure of how responsive a particular product is with a change in the price i.e. how much the quantity demand for the product change with a change in the price of that product.
Presence of a substitute increases the price elasticity of that product. For example, consider a situation where there is no substitute for wine. The price elasticity of wine will be less i.e. the demand for the wine will not change much if the price of wine increase or decrease. But, now a new substitute for wine has come up. That means if the price of the wine increase consumer has another choice to move to. This will increase the elasticity of the product. More substitute people have more elastic the product demand get.
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