Price Elasticity

The price elasticity of demand (ep) is defined in the textbook as the percentage change in the quantity demanded of a given good, X, relative to a percentage change in its own price, all other factors assumed constant.

The textbook presents three major determinants of a good’s price elasticity of demand:

1. The number of substitute goods

2. The percent of a consumer’s income that is spent on the product

3. The time period under consideration

Consider some other possible determinants:

4. Nature of the good: necessity, comfort or luxury good

5. Income level: Higher income level group demand versus lower income level group demand

6. Level of price

7. Possibility of postponement of consumption

8. Number of uses

9. Consumption habits

Some sample sources on possible determinants:

1. Choose a product/good/commodity/brand you are familiar with: one your company sells or one you personally consume..

2. Consider the possible determinants of your chosen good’s price elasticity of demand.

3. Write a 1- to 2-page business brief that includes the following sections. Include 1 to 2 sources in addition to your textbook.

o Opening: Discussion of the chosen product/good/commodity/brand and the reasons you chose it.

o Discussion on what you consider the major determinants of the chosen good’s price elasticity of demand.

o Recommendation: Choose its one or two most significant determinants and comment on the good’s relative price elasticity of demand as compared to sample .

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