Question

Which one of the following factors influences the price elasticity of demand?

Which one of the following factors influences the price elasticity of demand?

Homework Answers

Answer #1

The following factors influences the price elasticity of demand :

  • Availability of substitutes: If a good has large number of substitutes available, then the good has higher elastic demand and if it has low substitutes available, then the demand for it is relatively inelastic.
  • Uses of a good: If a good has large number of uses, then the elasticity for the good would be elastic.  The demand for multi-use goods is more elastic as compared to single-use goods.
  • Distribution of income: If a consumer has higher income levels, then the demand for goods by that consumer will be inelastic whereas if it has lower income level, then the demand for the goods will be elastic.
  • Time horizon: In the long run, the demand for the goods are relatively more elastic because consumer find it easy to shift their consumer patters. While in the short run, the demand for the goods are inelastic.
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