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.Continue Reading
The number of available substitutes is a key determinant of price elasticity of demand. The more substitutes a good has, the greater price elasticity of demand it has. A seller of a good with many substitutes has less ability to raise the price because consumers will switch to a lower priced substitute. 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. However, as more time passes, consumers adjust their purchasing behavior.Learn more about Economics
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. By using these determinants, businesses can estimate how a change in the price affects demand.Full Answer >
The slope and elasticity of a linear demand curve are extremely closely linked, but where the slope itself is just a measure of how much demand changes given a change in price, elasticity is a description of what that slope means. Elasticity relates slope to the profitability of price changes.Full Answer >
Investopedia defines price elasticity of demand as a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. The price elasticity of demand is equal to the percent change in quantity demanded divided by the percent change in price.Full Answer >
Elastic demand, also known as the price elasticity of demand, describes the price sensitivity of a particular good. When a product has elastic demand, a percentage change in price is followed by a larger, inverse percentage change in the quantity demanded. Inelastic demand is the opposite of elastic demand.Full Answer >