Elasticity pt.2

4 MAJOR DETERMINANTS OF PRICE ELASTICITY OF DEMAND:
1. Availability of Close Substitutes:
 The more available close substitutes that exist for a good, the more elastic (less inelastic) the demand for the good and vice versa.
2. How Widely or Narrowly You Define a Good:
 The more widely you define a good, the less elastic (more inelastic) the demand for the good and vice versa. Form example, a particular brand of gasoline such as Shell, BP, or Marathon (narrow), versus gasoline in general.
3. Price of a Good as a Portion of Consumer Income:
 The larger the price of a good as a portion of consumer income, the more elastic (less inelastic) the demand for the good and vice versa.
4. Time:
 The longer a price change persists through time, the more elastic (less inelastic) the demand for the good.
 This is known as the SECOND LAW OF DEMAND! It takes time to find, use, and seekout substitutes for the good.



PRICE ELASTICITY OF SUPPLY:

 It is a measure of the responsiveness of quantity supplied to changes in a good’s price!

 es = % ∆QS / % ∆P

 Elastic: es > 1
 Inelastic: es < 1
 Unit Elastic: es = 1
 Perfectly Inelastic (Vertical Supply Curve)
 Infinitely Elastic (Horizontal Supply Curve)

Resource: Ms.Deeter- AP Economics