Question

What factors influence the price elasticity of demand for a good?

Answer 1

Price elasticity of demand is defined as the measurement of how responsive to changes in price the quantity demanded of a good is. The consumption of goods with relatively elastic demand is fairly responsive to changes in price, and the consumption of goods with relatively inelastic demand is not very responsive to changes in price

-- Nature of Goods: The economics goods are classified into three categories, i.e. luxuries, comforts and necessities. Elasticity of demand is highly elastic for luxury goods; is inelastic demand for necessities; and is more elastic for comforts

-- Availability of Substitutes: When in the market a good has more close substitutes the elasticity for that good will be high; and vice-a-versa

-- Number of Uses of a Good: The single-use goods is less elastic as compared to multi-use goods.

-- Distribution of Income: The consumers in the bracket of lower or middle income would be highly sensitive to change in the price compared to high income people whose demand would be inelastic

-- Complementary goods: Elasticity of demand is relatively inelastic for the complementary goods

-- Price of the good: When the price of good is very small, a slight price change would have no considerable impact on demand

-- Role of Habits: In the consumption of articles of addiction such as alcohol, drugs and tobacco products an increase in price would not reduce the demand and the elasticity of demand will be relatively small