Published On:Wednesday 28 December 2011
Posted by Muhammad Atif Saeed
Elasticity of Demand
Determinants of price elasticity include:
- Availability of substitutes - if substitutes are plentiful, then demand should be elastic.
- Relative percentage of expenditure - if an item takes up a considerable proportion of a consumer's income, then demand should be elastic; if it takes up a very small amount, then demand should be expected to be inelastic.
- Amount of time - consumers can make more adjustments to prices changes over time and, therefore, demand tends to be more elastic as time passes.
- Necessities or luxuries - demand for necessities will tend to be inelastic, while demand for luxuries will tend to be elastic.