List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic
What will be an ideal response?
1. Availability of close substitutes: If a product has more substitutes available, it will have more elastic demand. If a product has fewer substitutes available, it will have less elastic demand.
2. Passage of time: The more time that passes, the more elastic the demand for a product becomes.
3. Luxuries versus necessities: The demand curve for a luxury is more elastic than the demand curve for a necessity.
4. Definition of the market: The more narrowly a market is defined, the more elastic demand will be.
5. Share of a good in a consumer's budget: The demand for a good will tend to be more elastic the larger the share of the good in the average consumer's budget.
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