Question

What are the major determinants of price elasticity of demand?
Use those determinants and your own reasoning in judging whether demand for each of the following products is elastic or inelastic.
a. Bottled water
b. Toothpaste
c. Crest toothpaste

Answer 1

The determinants of price elasticity of demand are:

• Availability of number of substitutes
• Proportion of income spent on a good
• Number of uses of a good
• Luxury and necessity

a) Demand for Bottled water is elastic. Because there are many substitutes available for Bottled water.

b) Demand for Toothpaste is Inelastic. Because there is no substitute available for Toothpaste and it is a necessary good.

c) Demand for crest toothpaste is elastic. Because crest toothpaste is a specific brand of toothpaste and there are many other brands of toothpastes are available in the market.