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9 Main Determinants of Price Elasticity of Demand – Explained!

What Are Four Determinants of Price Elasticity of Demand?

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What Are the Major Determinants of Price Elasticity of Demand?
What Is Price Elasticity?
Determinants of Elasticity of Demand

Brand loyalty decreases when the number of substitute goods increases. The size of the expenditure also affects price elasticity of demand. A low-priced good has less price elasticity because the price is such a small percentage of a consumer's income. 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.

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.

The elasticity of demand also depends on the complementary goods, the goods which are used jointly. Such as car and petrol, pen and ink, etc. Here the elasticity of demand of secondary supporting commodity depends on the elasticity of demand of the major commodity.

Such as, if the demand for pen is inelastic, then the demand for the ink will also be less elastic. The price range in which the commodities lie also affects the elasticity of demand. Such as the higher range products are usually bought by the rich people, and they do not care much about the change in the price and hence the demand for such higher range commodities is said to be inelastic.

Also, the lower range commodities have inelastic demand because these are already low priced and can be bought by any sections of the society. But the commodities in middle range prices are said to have an elastic demand because with the fall in the prices the middle class and the lower middle class are induced to buy that commodity and therefore the demand increases.

But however, if the prices are increased the consumption reduces and as a result demand falls. Thus, these are some of the important determinants of elasticity of demand that every firm should understand properly before deciding on the price of their offerings.

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. People with high incomes are less affected by price changes than people with low incomes. A rich man will not curtail his consumption of vegetables, milk, fruits even if their prices rise significantly and he will continue to purchase the same amount as before. But a poor man cannot do so. Thus, the distribution of national income has an important bearing on the elasticity of demand.

In the short-run the demand is inelastic while in the long-run demand is elastic.

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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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The main determinants/factors which determine the degree of price elasticity of supply are as under: (i) Time period. Time is the most significant factor which affects the elasticity of supply.

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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. The Elasticity of Demand is a measure of sensitiveness of demand to the change in the price of the commodity. The price elasticity of demand (PED) is a measure that captures the responsiveness of a good’s quantity demanded to a change in its price. More specifically, it is the percentage change in quantity demanded in response to a one percent change in price when all other determinants of demand are held constant.

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The more something is considered a 'luxury' the more the price elasticity of demand. Electricity is a necessity so not as affected. However, a vacation is a luxury and could be done without and you won't suffer without a vacation. Determinants of Price Elasticity of Supply A numeric value that measures the elasticity of a good when the price changes.-availability of materials - The limited availability of raw materials could limit the amount of a product that can be produced.