Final answer:
The price elasticity of demand for a good is more elastic when there is a large number of close substitutes available, indicating a higher sensitivity to price changes. Elastic demand, with an elasticity greater than one, means consumers will readily switch to alternatives if the price rises. High-priced goods generally have a more elastic demand compared to inexpensive everyday items.
Step-by-step explanation:
When considering the price elasticity of demand for a good, the existence of substitutes plays a crucial role. The larger the number of substitutes available for a good and the closer these substitutes are in terms of functionality and quality, the more elastic the demand for that good is likely to be. This situation indicates a high responsiveness of quantity demanded to changes in price.
Elastic demand is characterized by a demand elasticity greater than one, which implies that consumers are willing to switch to other products easily when the price of the good in question increases. If good A is a substitute for good B, a higher price for B will lead to an increased quantity consumed of A. This positive cross-price elasticity of demand demonstrates the relationship between substitute goods.
Additionally, higher-priced goods tend to have a more elastic demand compared to inexpensive goods. Luxury items or goods with a significant cost, like a video game console, generally exhibit more elasticity than something as everyday as a candy bar, where the demand is less sensitive to price changes.