Question

What are the determinants of price elasticity of demand?

Using your list , determine whether demand for each of the following products is elastic, unit elastic or inelastic.

1. Bottle of water
2. Insulin (used to regulate blood sugar of diabetic individuals)
3. Gasoline
4. Ketchup

Make sure to explain your reasoning as you decide whether the demand for each of these products is elastic, inelastic or unit elastic.

Answer 1

1 - The determinants of elasticity of demand are -

a - The income level of the consumers

b - nature of the good in terms of the necessity or substitutes

c - The availability of substitutes of product in the market.

d - the time frame i.e short run or long run

2 -

a - Bottle of water is a necessity and hence it will have inelastic demand

b - insulin will have the inelatic demand because it is a life saving drug and the demand will not change if price changes.

c - The people will start using petrol or other fuel if price of gasoline rises. Thus gasoline will have elastic demand.

d - This good is not the necessity , it will have elastic demand.