Factors affecting PED

Question 1

What happens if the price of the good is high

Answer 1

If the price of a good is high, the price elasticity of demand will be more elastic than if the price is low. Cars will have a more elastic demand than bicycles. If the price of a new car increases by 50%, quantity demanded will fall by a larger % as the car now becomes unaffordable to many consumers.
If the price of a bicycle increases by 50%, quantity demanded will also fall but by less than 50% because the price of the bicycle is still low relative to he car

Question 2

The number of uses of the good.

Answer 2

If the commodity has a larger number of uses such as aluminum the greater will be the elasticity of demand. As price falls, a more than proportionate amount will be bought for all its different uses

Question 3

The degree of necessity of the good

Answer 3

The more necessary a good, the more inelastic demand will be. Demand is not very responsive to price increases if the consumer needs the good, and the consumer will continue to buy similar amounts. When price decreases, the consumer will again buy similar amounts, as there is only so much of the good than the consumer can use eg. salt

Question 4

Habit

Answer 4

Goods that are habit forming generally have a lower elasticity of demand. Consumers continue to buy similar quantities of the good even when prices increase because the consumer cannot do without the good
eg. colagate/cigarettes