Determinants of Price Elasticity of Demand | Details Explanation
The price elasticity of demand is not same for all the goods because it may be high or low depending upon the number of determinants of price elasticity of demand. Some of the are mention below.
1. Necessity versus Discretionary Expenditure
In some cases price elasticity of demand depends on the nature of the commodities. The price elasticity of demand for necessities goods is inelastic whatever the price are while the price elasticity of demand for discretionary goods is elastic.
2. Availability of substitutes
The goods who have close substitute in the market than the price elasticity of demand for those goods is elastic and the goods which have no close substitute than the price elasticity of demand for them are inelastic.
3. Definition of market
The price elasticity of demand also depends on the market definition. If the definition of the market is narrow then the price elasticity of demand is elastic while when the definition of market is wider then the price elasticity of demand is inelastic.
4. Time period
The period of time also plays an important role in shipping the demand curve. In short-run, in which the demand for something is cannot be postponed then the price elasticity of demand in short-run is inelastic while the price elasticity of demand of demand in long-term is elastic.
5. More uses of one good
If a good is uses for more than one purposes than the price elasticity of demand is greater elastic.
6. Habit Goods
If a good is become habit then the price elasticity of demand for that good is inelastic like cigarette, alcohols, drugs, etc.
7. Joint Demand
If two goods are jointly demanded in case of complementary goods then the price elasticity of demand depends upon the prices of that commodities. Because when the price of one good rise then the price elasticity of demand for other good is inelastic.
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