If brand loyalty reduces substitutability, this causes the price elasticity of demand to ______.

If brand loyalty reduces substitutability, this causes the price elasticity of demand to ______.

• A. Increase
• B. Stay the same
• C. Vary with income
• D. Decrease

Answer: (D)

Price elasticity of demand shows how responsive buyers are to price changes. When brand loyalty is strong, substitutability is low because consumers favor the same brand and see few close alternatives. That makes quantity demanded less sensitive to price changes. In other words, when price goes up, loyal customers continue buying at roughly the same rate, so the percentage drop in demand is smaller than the percentage price increase. As a result, the elasticity metric falls. So the price elasticity of demand decreases.

Price elasticity of demand shows how responsive buyers are to price changes. When brand loyalty is strong, substitutability is low because consumers favor the same brand and see few close alternatives. That makes quantity demanded less sensitive to price changes. In other words, when price goes up, loyal customers continue buying at roughly the same rate, so the percentage drop in demand is smaller than the percentage price increase. As a result, the elasticity metric falls. So the price elasticity of demand decreases.