Determinants Of Price Elasticity Essay

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“What are the determinants of the price elasticity of demand?” Price elasticity of demand measures the amount of responsiveness of the quantity of a product, demanded by the consumers of a good or product when the price is increased or decreased (Elasticity 191). Elasticity may also be defined as a ratio of proportionate change in the quantity demanded caused by change in price (Economics). There are generally, five major determinates for price elasticity of demand, they are; the availability of close substitutes, passage of time, whether the good is a luxury or a necessity, definition of the market and how much of the good takes up a consumer’s budget (Elasticity 191). Availability of substitutes in place of a certain product is a factor …show more content…
This is a twofold explanation which includes retailers competing while having two totally different outcomes as the complicity of elasticity is demonstrated in the simplest of terms. An example that has been used a countless numbers of times, is the comparison of gasoline prices at the pump. One pump station may charge $2.00 and another just a few miles down the road may charge $1.91. Consumers may be inclined to drive the extra mile for the cheaper price. If so, this will result in an elastic demand of the product referenced. At the international level we see that price points become inelastic because international trade dictates the price of the oils which are used to produce the gasoline the consumer requires. As a market is boiled down to much lower levels in the supply chain, it becomes more elastic at the consumer and retailer levels with a commodity such as fuel of any kind, every consumer needs or wants fuel. If there are very few, if any alternatives the guidelines discussed are amplified. Sometimes there are positive effects, such as forced scientific solutions to extraordinary pricing. The demand for a capability by many, in theory will result in this economic cycle beginning all over again. (Elasticity 191)

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