Essay on The Determinants Of The Price Elasticity Of Demand

1038 Words Sep 23rd, 2016 5 Pages
“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 that should always be considered. For example, there are very few products that there are no substitutes at all. Gas and oil is one that jumps out in the world of economics. From another perspective, one might consider cigarettes where there are plenty of options but there is only one source, Tabaco plants. If a consumer normally smokes Marlboro Brand cigarettes which are at the high end of tobacco, and let’s say this consumer encounters an economic crisis in their life they are probably going to continue to smoke. The option to purchase generic brand cigarettes is suddenly more appealing and available at half the price of Marlboro Brand cigarettes. The consumer will probably choose to buy the cheaper brand and sacrifice some…

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