Factors determining PED

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  • Created by: izzy
  • Created on: 09-06-13 18:33


Substitutability is the most important determinant of price elasticity of demand. When a substitute exists for a product, consumers respond to a price rise by switching expenditure away from the good, buying instead a substitute whose price has not risen. When very close substitutes are available, demand for a product is highly elastic. Conversely, demand is likely to be inelastic when no substitutes are available.

Percentage of income

The demand curves for goods or services upon which households spend a large proportion of their incomes tend to be more elastic than those of small items which only account for a small fraction of income.

Necessities of luxuries

It is sometimes said that the demand for necessities is price inelastic, whereas demands for luxuries is elastic. However, this statement should be treated with caution. When no obvious substitute exists, demand for a luxury good may be inelastic, while at the other extreme, demand for particular types of basic food stuffs is likely to be elastic if other staple foods are…


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