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The price elasticity of demand measures how responsive the quantity demanded of a good is to a change in its price. The value illustrates if the good is relatively elastic (PED is greater than 1) or relatively inelastic (PED is less than 1). A good's PED is determined by numerous factors, these include:

  • Number of substitutes: the larger the number of close substitutes for the good then the easier the household can shift to alternative goods if the price increases. Generally, the larger the number of close substitutes, the more elastic the price elasticity of demand.
  • Degree of necessity: If the good is a necessity item then the demand is unlikely to change for a given change in price. This implies that necessity goods have inelastic price elasticities of demand.
  • Price of the good as a proportion of income: It can be argued that goods that account for a large proportion of disposable income tend to be elastic. This is due to consumers being more aware of small changes in price of expensive goods compared to small changes in the price of inexpensive goods.

The following example illustrates how to determine the price elasticity of demand for a good. The price elasticity of demand for supermarket own produced strawberry jam is likely to be elastic. This is because there are a very large number of close substitutes (both in jams and other preserves), and the good is not a necessity item. Therefore, consumers can and will easily respond to a change in price.

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Related Questions

Which is not considered to be a determinant of the price elasticity of demand for a particular good?

Expectations of the future price


What is the primary determinant of elasticity of supply?

A key determinant of the price elasticity pf supply is the availability of alternative products. The more choices consumers have, the more elasticity the price must have.


Distinguish between price and income elasticity of demand?

distinguish between price elasticity of demand and income elasticity of demand


What are not a determinant of demand?

price of the good


Why is price elasticity of demand important when a country is considering devaluation of its currency?

because it is important


What are the 3 types of elasticity?

1)price elasticity of demand 2)income elasticity of demand 3)cross elasticity of demand


What is cross price elasticity demand?

Cross price elasticity of demand measures the responsivenss of demand for a product to a change in the price of another good.


If the elasticity of demand is equal to one then the demand is?

Unitary elasticity is when the price elasticity of demand is exactly equal to one.


Cross elasticity of demand?

In economics , the cross elasticity of demand and cross price elasticity of demand measures the responsiveness of the quantity demand of a good to a change in the price of another good.


Definitions of income elasticity of demand?

income elasticity can be applied in the intersection of market demand and supply. when there is income inequality people with less income get to buy less goods than they would have wanted this affects the suppliers who will have to reduce their goods to be supplied.


Distinguish between price elasticity and income elasticity?

The price elasticity refers to the change in demand due to the change in price. The income elasticity of demand on the other hand refers to the change in demand due to the change in income.


What is role of price elasticity of demand in business decision?

role of price elasticity of demand in managerial decisions

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