Elastic Demand from Substitutes

Steps:

• Recall price elasticity of demand measures responsiveness of quantity demanded to price changes; greater than one means elastic.
• Identify factors increasing elasticity: availability of close substitutes allows consumers to switch easily when price rises.
• Evaluate choices: A fits substitutes; B, C, and D suggest inelastic demand.
• Confirm A as the factor making demand highly sensitive to price.

Why A is correct:

• Close substitutes enable consumers to shift to alternatives if price increases, making quantity demanded highly responsive (elasticity >1), per the law of demand.

Why the others are wrong:

• B: Habit-forming goods create loyalty, reducing sensitivity to price changes (inelastic).
• C: Necessity goods have few substitutes and are essential, leading to inelastic demand.
• D: Small income proportion means price hikes don't strain budgets much, resulting in inelastic demand.

Final answer: A