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Factors Affecting Price Elasticity of Demand Video Lecture | Economics for JAMB
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FAQs on Factors Affecting Price Elasticity of Demand Video Lecture - Economics for JAMB
| 1. What is price elasticity of demand and why is it important? |  |
Ans. Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It is important because it helps businesses and policymakers understand how sensitive consumers are to changes in price. This information can be used to make pricing decisions, predict changes in demand, and assess the impact of taxes or subsidies on consumer behavior.
| 2. What are the factors that affect price elasticity of demand? | |
Ans. There are several factors that affect price elasticity of demand, including the availability of substitutes, the necessity of the product, the proportion of income spent on the product, the time period considered, and the habit-forming nature of the product. If a product has close substitutes, is a luxury item, consumes a small portion of income, has a long time period to adjust, or is habit-forming, its demand is likely to be more elastic.
| 3. How does the availability of substitutes affect price elasticity of demand? | |
Ans. The availability of substitutes is a key factor in determining the price elasticity of demand. When there are many close substitutes available for a product, consumers have more options to choose from. As a result, if the price of one product increases, consumers can easily switch to a substitute, leading to a higher price elasticity of demand. On the other hand, if there are few or no substitutes available, consumers have limited options and are more likely to continue purchasing the product even if its price increases, resulting in a lower price elasticity of demand.
| 4. Why does the proportion of income spent on a product affect price elasticity of demand? | |
Ans. The proportion of income spent on a product is an important factor in determining its price elasticity of demand. If a product represents a significant portion of a consumer's income, they are likely to be more sensitive to changes in its price. In such cases, even a small price increase can have a significant impact on the consumer's budget, leading to a higher price elasticity of demand. Conversely, if a product only represents a small fraction of a consumer's income, they may be less sensitive to changes in its price, resulting in a lower price elasticity of demand.
| 5. How does the time period considered affect price elasticity of demand? | |
Ans. The time period considered is another factor that affects price elasticity of demand. In the short run, consumers may have limited options to adjust their consumption patterns in response to a price change. Therefore, demand tends to be less elastic in the short run. However, in the long run, consumers have more time to find substitutes, change their preferences, or adjust their budgets, making demand more elastic. For example, if the price of a car increases, consumers may not immediately switch to other modes of transportation in the short run. But over time, they may opt for public transportation or carpooling, resulting in a higher price elasticity of demand.
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Nov 22, 2024 Last updated |
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