Determinants of Price Elasticity of Demand
Determinants of Price Elasticity of Demand (PED)
These are the factors that decide how strongly people react when the price changes.
1. Substitutes (Other Choices)
If people can easily find another product, they will switch when the price goes up → Elastic Example: Pepsi and Coca-Cola.
If there are no other options, people still buy it → Inelastic Example: Medicine or toothpaste.
2. Income (Money Spent)
If the product costs only a small part of your income → Inelastic Example: Salt, matchbox.
If it takes a large part of your income → Elastic Example: Cars, holidays.
3. Necessity (How Important It Is)
If it is something people need → Inelastic Example: Food, fuel, housing.
If it is something people can live without → Elastic Example: Luxury clothes, watches.
4. Habits or Addictions
If people are addicted or used to a product, they keep buying it → Inelastic Example: Cigarettes, coffee.
5. Advertising and Brand Loyalty
Strong brands or good advertising make people loyal → Inelastic Example: Apple, Coca-Cola.
6. Time
In the short term, people cannot change quickly → Inelastic
In the long term, people can find alternatives → Elastic
7. Durability (How Long It Lasts)
Durable goods last long, so people may wait to buy → Elastic Example: Cars, furniture.
Perishable goods must be replaced often → Inelastic Example: Milk, bread.
8. Switching Costs
If it is hard or expensive to change brands, people stay with the same one → Inelastic Example: Mobile phone plans, laptops with special chargers.
9. Broad or Narrow Product
Broadly defined products like food or housing have no substitutes → Inelastic
Narrowly defined products like apples or Coca-Cola have substitutes → Elastic