Theincome elasticity of demand, and the crossprice elasticityof demand. The elasticity of demand for a commodity will be the net result of all the forces working on it. Time the longer the period of time, the more price elastic is the demand for a product. Elasticity of demand and supply will be taught in economics tuition in the fourth and fifth weeks of term 1. Elasticity of demand is defined as the responsiveness of the quantity demanded of a good to change on one of the variables on which demand depends. For most consumer goods and services, price elasticity. Firstly if close substitutes are available then there is a tendency to shift from one product to another when the price increases and demand is said to be elastic. What are the determinants of price elasticity of demand. Elasticity of demand concepts price elasticity of demand. Determinants of price elasticity of demand watch more videos at lecture by. Commodities are classified as necessities, luxuries and comforts. The more available substitutes there are, the more elastic the demand will be.
If a product has many close substitutes, for example, fast food, then people tend to react strongly to a price increase of one firms fast food. The income of the consumer also affects the elasticity of demand. For example, we can compare the demands for latte and baseball tickets. Elasticity of demand is the ratio of two percentages and so elasticity is a number with no units.
Elasticity of demand measures the degree of responsiveness of the quantity. What are the determinants of the price elasticity of demand. Elasticity of demand price, income and cross elasticities estimation point and arc elasticity giffen good normal and inferior goods substitutes and complementary goods elasticity of demand elasticity of demand refers to the sensitiveness or responsiveness of demand. Elasticity allows us to compare the demands for different goods. Cbse class 12 micro economics class notes elasticity of demand. What are the determinants of elasticity of demand answers. The most important determinants of elasticity are discussed below. Pdf the estimation and determinants of the price elasticity of. Determinants of price elasticity of demand although we know how to measure the elasticity. Concept of elasticity the quantity demanded of a good is affected mainly by. The three determinants of price elasticity of demand are. The demand for a commodity is elastic or inelastic will depend on a variety of factors. Practice what youve learned about the relationship between price elasticity of demand and total revenue in this exercise.
Determinants of price elasticity of demand necessities versus luxuries. The price elasticity of demand ped refers to the change in demand which arises due to the change in price it is the percentage change in quantity demanded in response to a one percent change in price and where all other determinants remain constant. We will look at how quantity demanded and supplied respond to their key determinants in. Pdf the authors derive an expression for the price elasticity of demand in the presence of. An elastic demand is one in which the change in quantity demanded due to a change in price is large. For highincome groups, the demand is said to be less elastic as the rise or fall in the price will not have much effect on the demand for a product. A measure of a markets sensitivity to increases or decreases in advertising saturation. Instructor in other videos we have already started talking about the price elasticity of demand, and what were gonna do in this video is think about the factors that might drive the price elasticity of demand in a given market to be more or less elastic. That would be the availability of good substitutes for that demand. Identifying the determinants of elasticity the main determinants of a products elasticity are the availability of close substitutes, the amount of time a consumer has to search for substitutes, and the percentage of a consumers budget that is required to purchase the good. For instance in the income elasticity of demand for healthcare was calculated as 1.
Determinants of price elasticity of demand youtube. A goods price elasticity of demand is largely determined by the availability of substitute goods. When the elasticity is equal to zero, the demand is perfectly inelastic and is a vertical line. Thus, the price elasticity of demand of this firms product is high. If a product can be easily substituted, its demand is elastic, like gaps jeans. The higher the percentage of a consumers income used to pay for the product, the higher the elasticity tends to be. Determinants of price elasticity of demand video khan. Determinants of price elasticity of demand video khan academy. Demand on account of increase in real income is known as income 11 jan 2018 income elasticity of demand is the degree of responsiveness of quantity positive income elasticity can be further classified into three types. Followings are the main determinants of elasticity of demand determinants 1. Income elasticity of demand is the percentage change in the quantity demanded to a percentage change in income. Business economics determinants of price elasticity of demand.
Determinants of price elasticity and the total revenue. Price elasticity of demand can be effected by many factors, such as. The more that a good is considered a luxury a good that we can do without rather than a necessity a good that we cant do without, the higher the price elasticity of demand. Apart from the price, there are several other factors that influence the elasticity of demand.
Crosspriceelasticityofdemand measures the percentage change in quantity demanded of a good x resulting from one percentage change in price of another good y. It is possible to calculate the income elasticity of demand for a good using the are both normal goods because income. There are several factors that affect how elastic or inelastic the price elasticity of demand is, such as the availability of substitutes, the timeframe, the share of. Business economics determinants of price elasticity of demand price elasticity. There are number of factors which determine the price elasticity of demand. So one could say that were gonna think about the determinants of the price elasticity. Start studying four determinants of price elasticity of demand.
The degree of responsiveness of demand to the changes in determinants of demand price of the commodity, income of a consumer, price of related commodity is known as elasticity of demand. The element of time also influences the elasticity of demand for a commodity. Determinants of elasticity of demand week 2 supply and. We will then learn how to use the supply demand framework to explain and predict market outcomes and to show how government policies affect those market outcomes. Demand can be classified as elastic, inelastic or unitary. Determinants of price elasticity of demand goods economics. Number of substitutes the goods which tend to have more substitutes have elastic demand.
Elasticity of demand for spaghetti is likely to be higher than that for salt. Download fulltext pdf determinants of storelevel price elasticity article pdf available in journal of marketing research 321 february 1995 with 929 reads. The demand for a product is more elastic if there are close. This paper studies the determinants of chinas money demand through building linear econometric model and svar model. Demand and elasticity supply concept of elasticity of demand pdf demand sensitivity analysis elasticity elasticity demand numerical question 24 three cases of price elasticity of demand concept of elasticity of demand for a university how cross elasticity of demand is used to define goods and services elasticity of supply. Explain how a goods price elasticity of demand may be different in the short term than in the long term. Consumers will turn to the substitute goods instead of buying a good that suddenly has become more expensive. A demand for a good or a service is elastic if it reacts strongly to a change of its price. The degree of responsiveness of quantity demanded to changes in price of commodity is known as price elasticity of demand. We will be studying the meaning and the types of demand elasticity. We have not yet discussed the reasons why some products have elastic demand and others not so. Law of demand and elasticity of demand 29 elasticity of demand it answers the question by how much. The factors that determine the price elasticity of demand for a good are.
Explain various types of price elasticity of demand. The book is available in the major bookstores in singapore. Pdf the dynamics of price elasticity of demand in the presence. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Various factors influence the price elasticity of demand.
Now that we are familiar with the concept of demand and the determinants of demand, let us study about another important concept the elasticity of demand. For nondurable goods, the longer a price change holds, the higher the elasticity is likely to be. Cross price elasticity definition substitutes and complements 4. Determinants of elasticity of demand a good with more close substitutes will likely have a higher elasticity. Determinants of elasticity of demand assignment point. Elastic demand e lasticity of demand is an important variation on the concept of demand. Four determinants of price elasticity of demand flashcards.