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Six major factors influencing the price elasticity of demand?


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The price elasticity of demand for a particular demand curve is influenced by the following factors:

  • Availability of substitutes: the greater the number of substitute products, the greater the elasticity.
  • Degree of necessity or luxury: luxury products tend to have greater elasticity than necessities. Some products that initially have a low degree of necessity are habit forming and can become "necessities" to some consumers.
  • Proportion of income required by the item: products requiring a larger portion of the consumer's income tend to have greater elasticity.
  • Time period considered: elasticity tends to be greater over the long run because consumers have more time to adjust their behavoir to price changes.
  • Permanent or temporary price change: a one-day sale will result in a different response than a permanent price decrease of the same magnitude.
  • Price points: decreasing the price from $2.00 to $1.99 may result in greater increase in quantity demanded than decreasing it from $1.99 to $1.98.