Answer to Question #82409 in Macroeconomics for Sahnawaz sahikh

Question

State the factors affecting price elasticity of demand

Answer 1

Factors affecting price elasticity of demand are:

1. Availability of substitute goods. The more similar products on the market, the corresponding and higher elasticity;

2. The high cost of the goods and its share of the goods in the total costs of the buyer. Ie, the higher the cost of the goods, the more sensitive is its further rise in price (the demand for expensive goods is always more elastic than the cheaper goods).

3. The level of income of buyers. For people with high incomes, price elasticity is always lower than for people with low incomes.

4. Place the goods in the consumer basket. For essential goods, vital and addictive (alcohol, cigarettes) demand is inelastic. In turn, the lower the value of the goods, the higher the elasticity.

5. The time factor. Under the condition of limited time, there is a direct relationship between the length of time for searching and purchasing goods and the level of elasticity for the goods.

6. The novelty of the product. The demand for a new product is less elastic than the old (traditional) product.