State The Factors Affecting The Price Elasticity Of Demand
State the factors affecting the price elasticity of demand?
The type of product will affect the price elasticity of demand i.e. a necessity such as petrol will have a inelastic demand as it is a must have for consumers so a change in price will cause only a minor change in price whereas if a product is not a necessity for consumers it will have an elastic demand meaning a small change in price could lead to a greater change in quantity demanded
The proportion of the consumers income spent on a product will influence the price elasticity of demand of a product as the change in price of a product that takes up a smaller proportion of a consumers income will tend to have a inelastic demand as the consumer can still afford to buy the product even if the price of the product increases examples include things such as lollipops. However a product that takes up a large proportion of the consumers income will tend to have an elastic demand as the consumers may be unable to afford the product if the prices increase examples include things such as price
The availability of close substitutes in the market will affect price elasticity of demand i.e. a product with very many close substitutes will tend to have a elastic demand as consumers will switch to another product if the price of the product that they were using previously increased examples include if the price of coca cola increases many people may prefer to drink Pepsi instead. However a product that has very few or no substitutes will tend to have a inelastic demand as consumers may not have another brand to switch to if the price of the brand they are currently using increase
Seasonal changes also the affect the price elasticity of demand of products because consumers tastes may be affected by the local environment examples product’s such as ice cream will tend to have a inelastic demand during hot seasons as consumers will want to have it so an increase in prices may not cause a greater than proportionate reduction
The type of product will affect the price elasticity of demand i.e. a necessity such as petrol will have a inelastic demand as it is a must have for consumers so a change in price will cause only a minor change in price whereas if a product is not a necessity for consumers it will have an elastic demand meaning a small change in price could lead to a greater change in quantity demanded
The proportion of the consumers income spent on a product will influence the price elasticity of demand of a product as the change in price of a product that takes up a smaller proportion of a consumers income will tend to have a inelastic demand as the consumer can still afford to buy the product even if the price of the product increases examples include things such as lollipops. However a product that takes up a large proportion of the consumers income will tend to have an elastic demand as the consumers may be unable to afford the product if the prices increase examples include things such as price
The availability of close substitutes in the market will affect price elasticity of demand i.e. a product with very many close substitutes will tend to have a elastic demand as consumers will switch to another product if the price of the product that they were using previously increased examples include if the price of coca cola increases many people may prefer to drink Pepsi instead. However a product that has very few or no substitutes will tend to have a inelastic demand as consumers may not have another brand to switch to if the price of the brand they are currently using increase
Seasonal changes also the affect the price elasticity of demand of products because consumers tastes may be affected by the local environment examples product’s such as ice cream will tend to have a inelastic demand during hot seasons as consumers will want to have it so an increase in prices may not cause a greater than proportionate reduction