The demand for a product is more elastic if there are close. Income elasticity of demand is the percentage change in the quantity demanded to a percentage change in income. Determinants of price elasticity and the total revenue. An elastic demand is one in which the change in quantity demanded due to a change in price is large.
Determinants of elasticity of demand week 2 supply and. For example, the elasticity of demand for latte is 2. Total revenue and the price elasticity of demand 1. The element of time also influences the elasticity of demand for a commodity. A goods price elasticity of demand is largely determined by the availability of substitute goods.
Determinants of elasticity of demand assignment point. For instance in the income elasticity of demand for healthcare was calculated as 1. When the elasticity is infinite, the demand is perfectly elastic and is a horizontal line. 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 the price elasticity of demand. This paper studies the determinants of chinas money demand through building linear econometric model and svar model. Elasticity of demand for spaghetti is likely to be higher than that for salt.
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. The three determinants of price elasticity of demand are. What are the determinants of elasticity of demand answers. Determinants of price elasticity of demand watch more videos at lecture by. 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.
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. Commodities are classified as necessities, luxuries and comforts. The demand for a commodity is elastic or inelastic will depend on a variety of factors. 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. Pdf the estimation and determinants of the price elasticity of. 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. What are the determinants of price elasticity of demand.
The degree of responsiveness of quantity demanded to changes in price of commodity is known as price elasticity of demand. We have not yet discussed the reasons why some products have elastic demand and others not so. Theincome elasticity of demand, and the crossprice elasticityof demand. Concept of elasticity the quantity demanded of a good is affected mainly by. Explain how a goods price elasticity of demand may be different in the short term than in the long term. Business economics determinants of price elasticity of demand price elasticity. The income of the consumer also affects the elasticity of 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. There are number of factors which determine the price elasticity of demand. The higher the percentage of a consumers income used to pay for the product, the higher the elasticity tends to be. Elasticity of demand is the ratio of two percentages and so elasticity is a number with no units. Start studying four determinants of price elasticity of demand. Elasticity of demand concepts price elasticity of demand. Demand can be classified as elastic, inelastic or unitary.
If a product cannot be substituted easily, its demand is inelastic, like gasoline. Students can refer to economics a singapore perspective for the diagrams. The more available substitutes there are, the more elastic the demand will be. If a product can be easily substituted, its demand is elastic, like gaps jeans. 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. The factors that determine the price elasticity of demand for a good are. The elasticity of demand for a commodity will be the net result of all the forces working on it. A measure of a markets sensitivity to increases or decreases in advertising saturation. Determinants of price elasticity of demand video khan. 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. Elasticity allows us to compare the demands for different goods.
Advertising elasticity is a measure of an advertising campaigns. If one of these factors changes, the supply curve shifts. For most consumer goods and services, price elasticity. The most important determinants of elasticity are discussed below. 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. Thus, the price elasticity of demand of this firms product is high.
When the elasticity is equal to zero, the demand is perfectly inelastic and is a vertical line. Cross price elasticity definition substitutes and complements 4. 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. Download fulltext pdf determinants of storelevel price elasticity article pdf available in journal of marketing research 321 february 1995 with 929 reads. Determinants of price elasticity of demand video khan academy. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Price elasticity of demand can be effected by many factors, such as. Determinants of price elasticity of demand although we know how to measure the elasticity. The book is available in the major bookstores in singapore. So one could say that were gonna think about the determinants of the price elasticity. Elasticity of demand and supply will be taught in economics tuition in the fourth and fifth weeks of term 1. Time the longer the period of time, the more price elastic is the demand for a product. That would be the availability of good substitutes for that demand.
Various factors influence the price elasticity of demand. Pdf the dynamics of price elasticity of demand in the presence. Business economics determinants of price elasticity of demand. Elastic demand e lasticity of demand is an important variation on the concept of demand. Determinants of price elasticity of demand goods economics. Pdf the authors derive an expression for the price elasticity of demand in the presence of. It is possible to calculate the income elasticity of demand for a good using the are both normal goods because income.
We will look at how quantity demanded and supplied respond to their key determinants in. Discuss factors that determine demand and supply elasticity. Elasticity of demand measures the degree of responsiveness of the quantity. A demand for a good or a service is elastic if it reacts strongly to a change of its price. Explain various types of price elasticity of demand.
We will be studying the meaning and the types of demand elasticity. Demand tends to be more elastic if the time involved is long. Law of demand and elasticity of demand 29 elasticity of demand it answers the question by how much. Followings are the main determinants of elasticity of demand determinants 1.
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. Four determinants of price elasticity of demand flashcards. Determinants of elasticity of demand a good with more close substitutes will likely have a higher elasticity. Cbse class 12 micro economics class notes 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. Practice what youve learned about the relationship between price elasticity of demand and total revenue in this exercise. 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. 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. Number of substitutes the goods which tend to have more substitutes have elastic demand. Determinants of price elasticity of demand necessities versus luxuries. Apart from the price, there are several other factors that influence the elasticity of demand.
Consumers will turn to the substitute goods instead of buying a good that suddenly has become more expensive. For example, we can compare the demands for latte and baseball tickets. Determinants of price elasticity of demand youtube. For nondurable goods, the longer a price change holds, the higher the elasticity is likely to be. 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. This is because consumers can substitute goods in the long run.