Factors Determining PeD Flashcards
How does substitutability affect PeD??
The more close substitutes a product has, the more price elastic the demand will be
What happens if a product doesn’t have close substitutes eg alcohol?
The demand is inelastic to price, as there are no other options for consumers.
As a result you get indirect tax targeted at these products
How does PeD change in the short run and long run??
Short run- PeD is inelastic to many products because customers can’t change their products easily and quickly
Long run- PeD becomes more elastic as people become more aware of substitutes
How do necessities and luxuries have different PeD???
Necessities have inelastic PeD because they are needed
Luxuries are price elastic as there are usually other substitutes
How does % of income spent on a product affect whether it’s PeD is elastic or not??
Cheaper products that increase in price tend not to affect demand much (inelastic)
