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Section 3: Determinants of Price Elasticity of Demand

Determinants

❶Similarly, the demand for common salt is inelastic, partly because consumers do not use it alone but along with other things.

What Are the Major Determinants of Price Elasticity of Demand?

Determinants of Elasticity of Demand
What Are Four Determinants of Price Elasticity of Demand?
What Is Price Elasticity?

For example, a change in the price of nails will have less effect than a change in the price of cars. Durability affects price elasticity of demand of a good because consumers continue to use older goods when sellers raise the price of new goods.

Perishable goods do not offer consumers the option of using older goods. Time is the final determinant of price elasticity of demand. In the short run, consumers continue purchasing the same amount of a good when the price rises. However, as more time passes, consumers adjust their purchasing behavior. Quick Answer Price elasticity of demand illustrates how the quantity demanded of a good is affected by the change in price of that good. What Is Price Elasticity? For example, if cement, bricks, wood and other building materials become costlier, people will postpone the construction of houses.

Therefore, price elasticity of building materials will be high. The demand for such goods is inelastic on which a small portion of income is spent, the j items like toothpaste, shoe polish, electric bulbs have inelastic demand as we spend a small portion of our income on these items.

If the prices of these items rise, the consumer budget is not affected much. On the other hand clothes and durable items take away a large portion of the income. Therefore, the demand for such commodities is elastic. At a very high or very low range of prices, demand tends to be inelastic Demand for high priced commodities come from only the rich people who give little importance to price.

A change in the price of high-priced commodities will not generally affect the demand of rich consumers. On the other hand low priced commodities are either necessities or a small part of income is spent an them. Therefore, their demand is inelastic. Some products are elastic buyers are price sensitive , and some products are inelastic buyers are not price sensitive. The availability of close substitutes. If a product, such as salt, is very inexpensive, consumers are relatively indifferent about a price increase.

Therefore, salt has a low price elasticity of demand. Therefore, cars have a higher price elasticity of demand. The period of time under consideration. 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 change.

If the price of gasoline increases considerably, buyers may not decrease their consumption much after one week. However, after two years, they have the ability to move closer to work or school, arrange carpools, use public transportation, or buy a more fuel-efficient car. If a government increases the sales tax on a product by 50 cents, does that mean that the equilibrium price of the product will increase by 50 cents?

The answer is no.


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Business Jargons Economics Determinants of Elasticity of Demand Determinants of Elasticity of Demand Definition: The Elasticity of Demand is a measure of sensitiveness of demand to the change in the price of the commodity.

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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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Price elasticity of demand illustrates how the quantity demanded of a good is affected by the change in price of that good. The determinants of price elasticity of demand are the availability of substitutes, size, durability and time. The number of available substitutes is a key determinant of price. The three determinants of price elasticity of demand are: 1. The availability of close substitutes. If a product has many close substitutes, for example, fast food, then people tend to react strongly to a price increase of one firm’s fast food. Thus, the price elasticity of demand of this firm’s product is high.