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What Determines Price Elasticity of Demand

What Are the Major Determinants of Price Elasticity of Demand?

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Determinants

Determinants of Elasticity of Demand
What Is Price Elasticity?

Elasticity of demand measures the responsiveness of demand to a change in price. Inelastic demand will have some or all of the following characteristics. Not many close substitutes e. Bottled water There are alternative drinks, but, they are not close substitutes. Toothpaste There are no substitutes for toothpaste although I had a year-old aunt who used soap for some reason.

Crest toothpaste There are many alternative brands of toothpaste, which are quite similar. I imagine brand loyalty to crest toothpaste is fairly weak, therefore elastic Price Elastic Goods Goods which are price elastic will have the opposite features. There will be some or all of the following characteristics Many substitutes Bought frequently Luxury goods not necessities Goods which are very competitive Related Elasticity of food Calculating PED Understanding elasticity Examples of elasticity.

Such as, if the commodity is used for a single purpose, then the change in the price will affect the demand for commodity only in that use, and thus the demand for that commodity is said to be inelastic. Whereas, if the product has several uses, such as raw material coal, iron, steel, etc.

Thus, the demand for such products is said to be elastic. Whether the Demand can be Postponed or not: If the demand for a particular product cannot be postponed then, the demand is said to be inelastic.

Such as, Wheat is required in daily life and hence its demand cannot be postponed. On the other hand, the items whose demand can be postponed is said to have elastic demand. Such as the demand for the furniture can be postponed until the time its prices fall. The substitutes are the goods which can be used in place of one another.

The goods which have close substitutes are said to have elastic demand. Such as, tea and coffee are close substitutes and if the price of tea increases, then people will switch to the coffee and demand for the tea will decrease significantly.

Whereas, if there are no close substitutes for a product, then its demand is said to be inelastic. Such as salt and sugar do not have their close substitutes and hence lower is their price elasticity. In general, for less-elastic products steeper demand curves , the burden of the tax is mostly on the consumers. For more-elastic products flatter demand curves , the burden of the tax is mostly on the suppliers. Your email address will not be published. Determinants of Price Elasticity of Demand Unit 3.

Elasticity Determinants Some products are elastic buyers are price sensitive , and some products are inelastic buyers are not price sensitive. The three determinants of price elasticity of demand are: Elasticity and the Slope of the Demand Curve. Elasticity and Total Revenue. Leave a reply Cancel reply Your email address will not be published.

Unit 3 Introduction Section 1: Demand Curves and Elasticity Section 2: Elasticity and the Slope of the Demand Curve Section 3:


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Definition: The Elasticity of Demand is a measure of sensitiveness of demand to the change in the price of the commodity. Determinants of Elasticity of Demand Apart from the price, there are sever Apart from price, there are several factors that influence the elasticity of demand.

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Price elasticity of demand has four determinants: product necessity, how many substitutes for the product there are, how large a percentage of income the product costs, and how frequently its purchased, according to Economics Help.

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Own-price elasticity of demand: Responsiveness of quantity demanded to a change in the good’s own price Cross-price elasticity of demand: Measures the responsiveness of the demand for a good to a change in the price of another good. Start studying Four Determinants of Price Elasticity of Demand. Learn vocabulary, terms, and more with flashcards, games, and other study tools.

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Readers Question: What are the major determinants of price elasticity of demand? Elasticity of demand measures the responsiveness of demand to a change in price. Inelastic demand means a change in price causes a smaller % change in demand. It means people are unresponsive to changes in price. Price elasticity of demand is greater if you study the effect of a price increase over a period of two years rather than one week. Over a longer period of time, people have more time to adjust to the price .