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Determinants of Price Elasticity of Demand definitions

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  • Price Elasticity
    Measures how much quantity demanded changes in response to a price change, reflecting consumer sensitivity.
  • Close Substitutes
    Alternative products that consumers can easily switch to when prices change, increasing responsiveness.
  • Necessities
    Essential goods that consumers continue to purchase even if prices rise, showing low responsiveness.
  • Luxuries
    Non-essential goods that consumers can forgo when prices increase, showing high responsiveness.
  • Market Definition
    Scope of a market, with narrower categories leading to greater sensitivity to price changes.
  • Narrow Market
    A specific product category where demand is more sensitive to price changes due to available alternatives.
  • Broad Market
    A wide product category where demand is less sensitive to price changes, as alternatives are within the same group.
  • Short Run
    A period where consumers cannot easily adjust their consumption habits, resulting in low responsiveness.
  • Long Run
    A period where consumers can adapt and find alternatives, increasing responsiveness to price changes.
  • Consumer Budget Share
    Portion of income spent on a product; higher shares lead to greater sensitivity to price changes.
  • Quantity Demanded
    Amount of a product consumers are willing to buy at a given price, influenced by various factors.
  • Utilities
    Services with few alternatives, resulting in low responsiveness to price changes.
  • Alternative Products
    Goods that can replace another in consumption, affecting how demand responds to price changes.
  • Responsiveness
    Degree to which demand changes when price changes, shaped by several determinants.