Economics Basics Availability of substitutes
Introduction
What Is Economics
Scarcity
Macro and Microeconomics
Production Possibility Frontier (PPF)
Opportunity Cost
Specialization and Comparative Advantage
Absolute Advantage
Demand and Supply
The Law of Demand
The Law of Supply
Time and Supply
Supply and Demand Relationship
Equilibrium
Disequilibrium
F. Shifts vs. Movement
Elasticity
The availability of substitutes

Income available to spend on the good
Time
Income Elasticity of Demand
Utility
Monopolies
Oligopolies
Perfect Competition
Conclusion

 

 

HOME
 


 

 

Factors Affecting Demand Elasticity

 

There are three main factors that influence a demandís price elasticity:

 

 

This is probably the most important factor influencing the elasticity of a good or service. In general, the more substitutes, the more elastic the demand will be. For example, if the price of a cup of coffee went up by $0.25, consumers could replace their morning caffeine with a cup of tea. This means that coffee is an elastic good because a raise in price will cause

a large decrease in demand as consumers start buying more tea instead of coffee.

 

However, if the price of caffeine were to go up as a whole, we would probably

see little change in the consumption of coffee or tea because there are few substitutes for caffeine. Most people are not willing to give up their morning cup

of caffeine no matter what the price. We would, therefore, say that caffeine is an inelastic product because of its lack of substitutes. Thus, while a product within

an industry is elastic due to the availability of substitutes, the industry itself tends

to be inelastic. Usually, unique goods such as diamonds are inelastic because they have few - if any - substitutes.

Contact for more learning: webmaster@freehost7com