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Determinants of Price Elasticity of Demand definitions

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  • Price Elasticity of Demand
    Measures how much quantity demanded responds to a price change, varying widely across different goods and situations.
  • Close Substitutes
    Alternative products that consumers can easily switch to when the price of a good changes, increasing responsiveness.
  • Necessities
    Essential goods that people continue to buy even if prices rise, resulting in less sensitivity to price changes.
  • Luxuries
    Non-essential items that consumers can forgo when prices increase, leading to greater sensitivity in demand.
  • Market Definition
    The scope used to categorize goods, where narrower categories show higher responsiveness to price changes.
  • Narrow Market
    A specific product category, such as apples, where demand reacts strongly to price shifts due to easy substitution.
  • Broad Market
    A wide product category, like fruit, where overall demand is less affected by price changes in individual items.
  • Short Run
    A period where consumers have limited ability to adjust their behavior, making demand less responsive to price changes.
  • Long Run
    A timeframe allowing consumers to adapt fully to price changes, resulting in more flexible demand.
  • Consumer Budget Share
    The proportion of income spent on a good; larger shares make demand more responsive to price changes.
  • Quantity Demanded
    The amount of a good consumers are willing to buy at a given price, which shifts based on elasticity determinants.
  • Utilities
    Services like electricity with few alternatives, causing demand to be less responsive to price changes.
  • Alternative Products
    Other goods that can replace a product, making demand more flexible when prices fluctuate.