Question

Explain the determinants of price elasticity of demand?

Please explain clearly in your words

Answer 1

Nature of the good- Necessity goods have relatively inelastic demand whereas luxury goods has elastic demand

number of close substitutes- Higher the number of close substitutes, higher will be the elasticity of demand or vice versa.

expenditure share in income-lower share expenditure of income have generally inelastic demand and higher share have higher elasticity

time span - longer the duration means higher will be the elasticity and smaller the duration lower will be the elasticity because people change their habits in longer period of time.