Final answer:
The demand for a product with many close substitutes is likely to be elastic, meaning that demand changes significantly with changes in price. Consumers can easily switch to substitutes in response to price changes, which makes the demand sensitive to price fluctuations.
Step-by-step explanation:
If a product has many close substitutes, its demand is likely to be more elastic.
When a product has many close substitutes, the demand for that product becomes more sensitive to price changes. This sensitivity is known as elasticity of demand. If the price of the product goes up, consumers can easily switch to a substitute, leading to a significant decrease in the quantity demanded for the original product. Conversely, if the price goes down, consumers might switch back, increasing the quantity demanded.
For instance, if the price of traditional printed books increases, consumers might turn to alternatives like electronic books. This substitutability makes the demand for printed books elastic. A similar principle applies to technology products, such as laptops and tablets; a decrease in the price of tablets can lead to a decrease in demand for laptops, as consumers opt for the less expensive substitute.
If a firm produces a product without close substitutes, it could be considered a monopoly in its market. However, when there are similar options available from other firms, the market is more competitive, and the firm's power to set prices is limited.