Final answer:
The narrower the definition of a product, the smaller the number of substitutes and the smaller the price elasticity of demand. Hence, option D is the correct answer. Narrow product definitions limit substitute options and make demand more inelastic.
Step-by-step explanation:
The question at hand asks about the relationship between the narrowness of a product's definition and its price elasticity and the number of substitutes. When the definition of a product is narrower, this typically means that there are fewer substitutes available because the product is more specific.
As a result, demand for that product becomes more inelastic because consumers will have fewer alternative options if the price changes. In summary, if we define a product narrowly, there will be fewer substitutes and the price elasticity of demand will be smaller. Therefore, the correct answer to the question is:
D. the smaller the number of substitutes and the smaller the price elasticity of demand.
To clarify price elasticity terms, when demand is elastic, the percentage change in quantity demanded is greater than the percentage change in price. Conversely, when demand is inelastic, the percentage change in quantity demanded is smaller than the percentage change in price.
Furthermore, in relation to cross-price elasticity of demand, products with a positive cross-price elasticity are considered substitutes, whereas those with a negative cross-price elasticity are considered complements.