Question

any three determinants of price elasticity of demand with help of example​

Answer 1

Answer:

1. The availability of close substitutes.

If a product has many close substitutes, for example, fast food, then people tend to react strongly to a price increase of one firm’s fast food. Thus, the price elasticity of demand of this firm’s product is high.

2. The importance of the product’s cost in one’s budget.

If a product, such as salt, is very inexpensive, consumers are relatively indifferent about a price increase. Therefore, salt has a low price elasticity of demand. Cars are expensive and a 10% increase in the price of a car may make the difference whether people will choose to buy the car or not. Therefore, cars have a higher price elasticity of demand.

3. The period of time under consideration.

Price elasticity of demand is greater if you study the effect of a price increase over a period of two years rather than one week. Over a longer period of time, people have more time to adjust to the price change. If the price of gasoline increases considerably, buyers may not decrease their consumption much after one week. However, after two years, they have the ability to move closer to work or school, arrange carpools, use public transportation, or buy a more fuel-efficient car

Answer 2

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1. The availability of close substitutes.

If a product has many close substitutes, for example, fast food, then people tend to react strongly to a price increase of one firm’s fast food. Thus, the price elasticity of demand of this firm’s product is high.

2. The importance of the product’s cost in one’s budget.

If a product, such as salt, is very inexpensive, consumers are relatively indifferent about a price increase. Therefore, salt has a low price elasticity of demand. Cars are expensive and a 10% increase in the price of a car may make the difference whether people will choose to buy the car or not. Therefore, cars have a higher price elasticity of demand.

3. The period of time under consideration.

Price elasticity of demand is greater if you study the effect of a price increase over a period of two years rather than one week. Over a longer period of time, people have more time to adjust to the price change. If the price of gasoline increases considerably, buyers may not decrease their consumption much after one week. However, after two years, they have the ability to move closer to work or school, arrange carpools, use public transportation, or buy a more fuel-efficient car