Price Elasticity Coefficient and Factors affecting price elasticity of demand

Demand elasticity

Lecture 4. Elasticity and its applications

Arc-elasticity:

Point-elasticity:

Factors affecting price elasticity of demand:

Substitution -The more substitutes, the higher the elasticity, as people can easily switch from one good to another if a minor price change is made.

Percentage in the consumer’ income -The higher the percentage that the product's price is of the consumers income, the higher the elasticity, as people will be careful with purchasing the goods because of its cost.

Useful or not -The more necessary a goods is, the lower the elasticity, as people will buy it no matter the price, such as insulin.

The time period under consideration -The longer a price change holds, the higher the elasticity, as more and more people will stop demanding the goods (i.e. if you go to the supermarket and find that blueberries have doubled in price, you'll buy it because you need it this time, but next time you won't, unless the price drops back down again). Elasticity will normally be different in the short term and the long term.

Breadth of definition: The broader the definition, the lower the elasticity

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