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An item with many close substitutes tends to have elastic demand because consumers can easily switch to alternative products if the price of the item rises. This sensitivity to price changes means that even a small increase in price can lead to a significant drop in quantity demanded, as consumers opt for substitutes. Conversely, if the price decreases, the demand for the item may increase sharply as it becomes more attractive relative to its alternatives. Therefore, the presence of close substitutes increases the responsiveness of consumers to price changes.
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An item's demand curve will be elastic when?
substitutes are unavailible
Explain Why an item that has many substitutes tend to have elastic demand?
An item with many substitutes tends to have elastic demand because consumers can easily switch to alternative products if the price of the item rises. This high availability of substitutes means that even a small increase in price can lead to a significant decrease in quantity demanded, as consumers opt for cheaper alternatives. Consequently, the demand for such items is sensitive to price changes, resulting in a more elastic demand curve.
Why is jewelry an elastic demand?
Let me rephrase the question: Why is demand for jewelry elastic? Or why is price sensitivity high for jewelry? Firstly, the consumer has a low/nil income. The lower the income, the higher the probability that he/she has high price sensitivity. E.g. if a student is buying jewelry, he/she'll probably go right for the cheaper range of jewelry and not the branded jewelry. On the other hand, if the consumer is rich, he/she won't care so much about the price of the jewelry. Secondly, the jewelry item has many close substitutes for it. If there are many close (and cheaper) substitutes, the consumer has more choice. So it is likelier that he/she might choose the cheaper substitutes if he/she thinks that one item is priced out of the market.
What is Elastic demand?
Elastic demand means something increases or decreases as the price of an item goes down or up.
What is the most important determinant of price elasticity of demand?
The price elasticity of demand measures how responsive the quantity demanded of a good is to a change in its price. The value illustrates if the good is relatively elastic (PED is greater than 1) or relatively inelastic (PED is less than 1). A good's PED is determined by numerous factors, these include:Number of substitutes: the larger the number of close substitutes for the good then the easier the household can shift to alternative goods if the price increases. Generally, the larger the number of close substitutes, the more elastic the price elasticity of demand.Degree of necessity: If the good is a necessity item then the demand is unlikely to change for a given change in price. This implies that necessity goods have inelastic price elasticities of demand.Price of the good as a proportion of income: It can be argued that goods that account for a large proportion of disposable income tend to be elastic. This is due to consumers being more aware of small changes in price of expensive goods compared to small changes in the price of inexpensive goods.The following example illustrates how to determine the price elasticity of demand for a good. The price elasticity of demand for supermarket own produced strawberry jam is likely to be elastic. This is because there are a very large number of close substitutes (both in jams and other preserves), and the good is not a necessity item. Therefore, consumers can and will easily respond to a change in price.
An item's demand curve will be elastic when?
substitutes are unavailible
Explain Why an item that has many substitutes tend to have elastic demand?
An item with many substitutes tends to have elastic demand because consumers can easily switch to alternative products if the price of the item rises. This high availability of substitutes means that even a small increase in price can lead to a significant decrease in quantity demanded, as consumers opt for cheaper alternatives. Consequently, the demand for such items is sensitive to price changes, resulting in a more elastic demand curve.
Why is jewelry an elastic demand?
Let me rephrase the question: Why is demand for jewelry elastic? Or why is price sensitivity high for jewelry? Firstly, the consumer has a low/nil income. The lower the income, the higher the probability that he/she has high price sensitivity. E.g. if a student is buying jewelry, he/she'll probably go right for the cheaper range of jewelry and not the branded jewelry. On the other hand, if the consumer is rich, he/she won't care so much about the price of the jewelry. Secondly, the jewelry item has many close substitutes for it. If there are many close (and cheaper) substitutes, the consumer has more choice. So it is likelier that he/she might choose the cheaper substitutes if he/she thinks that one item is priced out of the market.
What is Elastic demand?
Elastic demand means something increases or decreases as the price of an item goes down or up.
What is the most important determinant of price elasticity of demand?
The price elasticity of demand measures how responsive the quantity demanded of a good is to a change in its price. The value illustrates if the good is relatively elastic (PED is greater than 1) or relatively inelastic (PED is less than 1). A good's PED is determined by numerous factors, these include:Number of substitutes: the larger the number of close substitutes for the good then the easier the household can shift to alternative goods if the price increases. Generally, the larger the number of close substitutes, the more elastic the price elasticity of demand.Degree of necessity: If the good is a necessity item then the demand is unlikely to change for a given change in price. This implies that necessity goods have inelastic price elasticities of demand.Price of the good as a proportion of income: It can be argued that goods that account for a large proportion of disposable income tend to be elastic. This is due to consumers being more aware of small changes in price of expensive goods compared to small changes in the price of inexpensive goods.The following example illustrates how to determine the price elasticity of demand for a good. The price elasticity of demand for supermarket own produced strawberry jam is likely to be elastic. This is because there are a very large number of close substitutes (both in jams and other preserves), and the good is not a necessity item. Therefore, consumers can and will easily respond to a change in price.
What does determinants of demand mean?
The urgency of need, the availability of adequate substitutes, and the amount of income required to buy the item
Why jeans are elastic demand?
Jeans typically exhibit elastic demand because they are considered a non-essential item and have many substitutes available, such as other types of pants or casual wear. When prices for jeans increase, consumers may opt for alternative clothing options or delay purchases, leading to a significant change in quantity demanded. Additionally, factors like fashion trends and seasonal sales can further influence consumers' purchasing decisions, making demand for jeans responsive to price changes.
Why Bread is elastic or inelastic?
Bread is generally considered to be inelastic in demand because it is a staple food item that people need for their daily nutrition. Even if the price of bread increases, consumers are likely to continue purchasing it because there are few substitutes that can fulfill the same dietary role. However, the level of elasticity can vary depending on the type of bread and consumer preferences, as some specialty breads might have more elastic demand. Overall, essential goods like bread tend to show inelastic demand characteristics.
What are the differences between an elastic and inelastic item?
An elastic item benefits from price decreases whereas an inelastic item does not.
What is the definition of perfectly elastic demand?
A perfectly elastic demand is one whos demand curve is a perfectly horizontal line. This means that at the same price for the item, the consumer is willing to buy more and more even at that same price.
What would result in a higher absolute value of the price elasticity of demand for a product?
A higher absolute value of the price elasticity of demand for a product can result from several factors, including the availability of close substitutes, the product's necessity versus luxury status, and the proportion of income spent on the product. If consumers can easily find alternatives, or if the product is a luxury item that can be foregone, they are more likely to respond strongly to price changes. Additionally, if the product takes up a significant portion of a consumer's budget, demand tends to be more elastic, leading to a higher absolute value of elasticity.
What are the factors that are effecting price elasticity of demand?
Availability of substitutes, whether it is a neceesity or luxury, proportion of the purchaser's budget consumed by that item and permanent or temporary price changes.
