The price elasticity of moisturizing cream

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The price elasticity of moisturizing cream

Contact The Price Elasticity of Demand According to the law of supply and demand the quantity demanded of a good or service will generally increase if its price falls.

To see how strong this effect actually is we use the concept of elasticity. More specifically, the price elasticity of demand. Depending on what we are analyzing there are different demand elasticities that can be considered e. The most relevant of them is the price elasticity of demand which describes to what extent the quantity demanded of a good is affected by a change in its price.

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There are many factors that influence the elasticity so we will start off by looking at its most relevant determinants. Determinants The price elasticity of demand is determined by a multitude of economic, social, and psychological factors that each influence consumer preferences and choice in a unique way.

Being familiar with the most relevant of those determinants will be crucial for analyzing and comparing elasticities of various products. If a good is considered a necessity e.

Since people always have to satisfy their basic needs they do not respond much to price changes for basic goods. Close substitutes allow consumers to switch between different goods that satisfy the same or similar needs, thus if a good has one or more close substitutes, demand will be rather elastic.

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In that case people can just buy the substitute to satisfy the same needs if the price of the original product increases. On the other hand if there are no close substitutes available, consumers cannot just switch between equivalent products so they will not respond as strongly to a price change.

Products that are expensive i. As a result, consumers generally respond more strongly to price changes if they have to devote a larger proportion of their income to a certain product.

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In most cases demand is more elastic in the long run as compared to the short run. There are many occasions where consumers face significant switching costs in the short run because of binding contracts, opportunity costs, etc.

Those costs are usually lower in the long run because contracts can be allowed to expire and there is more time to prepare and to evaluate all available options. Now, please note that there may be additional determinants that are not mentioned here but are applicable in certain situations.

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This is not supposed to be a complete list. Basically every aspect that affects consumer preferences in any way will have an effect on the elasticity of a good or service and can thus be considered a determinant of elasticity.

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The price elasticity of moisturizing cream

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Price Elasticity Of Demand