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# Determinants Of Price Elasticity Of Demand And Supply Pdf

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Unit 3. Some products are elastic buyers are price sensitive , and some products are inelastic buyers are not price sensitive. The availability of close substitutes.

## Determinants of Price Elasticity of Supply

More specifically, it is the percentage change in quantity demanded in response to a one percent change in price when all other determinants of demand are held constant. The law of demand states that there is an inverse relationship between price and demand for a good. As a result, the PED coefficient is almost always negative. However, economists tend to ignore the sign in everyday use. Only goods that do not conform to the law of demand, such as Veblen and Giffen goods, have a positive PED. The numerical values for the PED coefficient could range from zero to infinity.

## Section 3: Determinants of Price Elasticity of Demand

Setting the right price for your product or service is hard. One of the critical elements of pricing is understanding what economists call price elasticity. But the phenomenon is more quantifiable than that, and price elasticity shows exactly how responsive customer demand is for a product based on its price. Take for example, beef. When the price dramatically increases, demand may go way down because people can easily substitute chicken or pork. Products and services can be:. This is one of the key metrics for marketing managers, says Avery.

Like price elasticity of demand, price elasticity of supply is also dependent on many factors. Some of these factors are within the control of the organization whereas others may be beyond their control. Regardless of the control, if the management has knowledge about these factors, it can manage its supply better. Here is a list of determinants which generally affect the price elasticity of supply in the market:. Capacity Addition: The theoretical model stated in the law of supply simply assumes that supply will be able to adjust up and down as and when the price changes.

Also, a steeper demand curve tends to be more inelastic, and a flatter demand curve tends to be more elastic. Page 4. Determinants of the Price Elasticity of.

## What are the determinants of price elasticity of demand?

Demand drives economic growth. Businesses want to increase demand so they can improve profits. Governments and central banks boost demand to end recessions. They slow it during the expansion phase of the business cycle to combat inflation. If you offer any paid services, then you are trying to raise demand for them.

The following are the main factors which determine the price elasticity of demand for a commodity: 1. The Availability of Substitutes 2. The Number of Uses of a Commodity 4.

The price elasticity of supply is the measure of the responsiveness in quantity supplied to a change in price for a specific good. In economics, elasticity is a summary measure of how the supply or demand of a particular good is influenced by changes in price. Elasticity is defined as a proportionate change in one variable over the proportionate change in another variable:. There are numerous factors that directly impact the elasticity of supply for a good including stock, time period, availability of substitutes, and spare capacity. The state of these factors for a particular good will determine if the price elasticity of supply is elastic or inelastic in regards to a change in price.

What are the main factors that affect the coefficient of price elasticity of demand?

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