Factors affecting price elasticity of demand
Understand the Problem
The question is asking about the factors that influence the price elasticity of demand, which refers to how sensitive the quantity demanded of a good is to changes in its price. This involves understanding various economic concepts that can affect consumers' purchasing decisions.
Answer
Availability of substitutes, necessity or luxury status, proportion of income spent, time since price change.
Factors affecting price elasticity of demand include 1) availability of substitutes, 2) whether the good is a necessity or luxury, 3) the proportion of income spent on the good, and 4) time elapsed since the price change.
Answer for screen readers
Factors affecting price elasticity of demand include 1) availability of substitutes, 2) whether the good is a necessity or luxury, 3) the proportion of income spent on the good, and 4) time elapsed since the price change.
More Information
Price elasticity of demand reflects how sensitive demand for a product is to price changes. The easier it is for consumers to find substitutes or if the product is a luxury, the more elastic the demand tends to be.
Tips
A common mistake is failing to consider all influencing factors, such as the time elapsed since a price change, which can alter consumer behavior.
Sources
- The web page with info on - Example Source - corporatefinanceinstitute.com
