What effect does a more broadly defined product have on the price elasticity of demand?

A more broadly defined product typically encompasses a wider range of goods that can fulfill similar needs, leading to a larger pool of substitutes available to consumers. This broader definition of a product means that if the price of that product rises, consumers can easily switch to alternative products that serve a similar function.

When considering price elasticity of demand, which measures how sensitive the quantity demanded of a good is to changes in its price, more broadly defined products often have a higher price elasticity. This is because the increased availability of substitutes allows consumers to react more significantly to price changes. Therefore, when a product is defined in a narrower manner, it is often associated with less substitution, causing demand to be less elastic.

In this context, the assertion that a more broadly defined product decreases the price elasticity of demand is misleading. Instead, a broader definition generally would lead to an increase in price elasticity, making consumers more responsive to price changes due to the availability of substitutes and alternative choices.