ACCA Advanced Performance Management (APM) Practice Exam

The introduction of a substitute for DVDs increases the price elasticity coefficient for DVDs primarily because it offers consumers an alternative option. When substitutes become available, the responsiveness of quantity demanded for a product to changes in its price typically rises.

In this situation, if the price of DVDs were to increase, consumers may easily switch to the substitute due to the availability of alternatives. This higher responsiveness signifies that consumers are more sensitive to price changes. The presence of substitutes makes it less likely for consumers to stick with DVDs if their prices rise, thus increasing the price elasticity of demand for DVDs.

The options that suggest a decrease in elasticity, no impact, or perfect elasticity do not account for the inherent relationship between substitutes and consumer choice. Availability of substitutes tends to provide consumers with options that lead them to react more strongly to price changes, reinforcing the understanding that demand becomes more elastic as alternatives are introduced.