Determinants of Elasticity, Cross Elasticity and Income Elasticity Flashcards
The greater the availability of substitutes, the more elastic is the product’s demand
Availability of substitutes
- more substitutes, more elastic demand
- degree of substitutability depends on how narrowly or broadly they are defined
- the closer the substitutes, the more elastic is demand
Substitutability
larger the expenditure relative to an individual’s budget, the more elastic the demand because the buyers notice the change in price more
proportion of income
Demand for low-priced goods is relatively ___
inelastic
Demand for high-priced goods is relatively
elastic
Substitutability
Proportion of Income
Luxury or necessity
Time
determinants of price elasticity
Demand for necessities is relatively
inelastic
demand for luxuries is relatively
elastic
the less necessary the item, the more elastic is the demand
Luxury or necessity
the longer the time period involved, the more elastic demand becomes because the buyer can adjust to price changes
Time
The ___ is a measure of the responsiveness of demand for a good to a change in the price of a substitute or a complement, other things remaining the same
Cross Elasticity of demand
Goods that can replace each other
substitute good
goods frequently consumed in combination
complementary goods
Measures degree to which consumers respond to a change in their income by buying more or less of a particular
income elasticity of demand
A increase in demand for a good when income rises is true for a normal good
income elasticity
