Final answer:
The correct answer to the question is (c) Elasticity, preferences. Substitute availability leads to more elastic demand, while consumer preferences, such as luxury versus necessity, play a role in determining demand elasticity. Shifts in supply or demand have a larger effect on equilibrium quantity when demand or supply is elastic.
Step-by-step explanation:
Generally, the more available substitutions are, the more elastic the demand is. The preferences of the market can affect demand elasticity in cases of substitutions. Hence, the correct answer is (c) Elasticity, preferences.
Substitute availability means that if consumers can find close substitutes for a product, they will likely switch to those substitutes instead of paying a higher price for the original product. This makes the demand for the product elastic. Meanwhile, the preferences of consumers, including their perceptions of necessities versus luxuries, can significantly affect elasticity. Luxury items tend to have more elastic demand because consumers will demand more if the product goes on sale, whereas necessities have inelastic demand as consumers need them irrespective of price changes.
If demand is elastic, shifts in supply will have a larger effect on equilibrium quantity rather than on price. As for supply, when it's elastic, shifts in demand will also have a larger effect on equilibrium quantity over price. Considering transatlantic air travel, business class, which is more of a luxury, would have more elastic demand compared to economy class, which is more of a necessity, reflecting a lower price elasticity.