Question

Describe three things that make the price elasticity of demand for a good more elastic.?

Answer 1

The things that make the price elasticity of demand for a good more elastic are as follows:

Availability of substitutes-consider substitutes such as tea and coffee which are close substitutes.If for example the price of tea increases,then the demand for tea will decrease and people will start consuming more coffee as it will become relatively cheaper than tea.So,the more substitutes a product has,the more price elastic its demand would be as a small increase in price will cause a larger proportionate change in demand.

Nature of goods-the price elasticity also depends upon the nature of the goods.Consider goods as necessities like water, gas, electricity and consider goods such as furniture, automobiles.The foods which are necessities are inelastic whereas goods such as automobiles are elastic as people cannot change their demand for the necessities but the demand for normal goods and luxury goods is very elastic.

Time period-The time factor plays a major role as demand for various goods changes with time. The good which is being consumed today in high quantity and is in high demand may be reduced in the future depending upon its price and depending upon a change in consumer's tastes and preferences.The price elasticity of demand tends to be less elastic in the short run as people cannot adjust to the price changes in the short run but in the long run, the price elasticity of demand would be elastic as people adjust and change their consumption habit and have more alternatives available to them.