Answer:
The price elasticity of demand (PED) is a measure of how responsive the quantity demanded of a product or service is to changes in its price. A product is considered price elastic if a change in price causes a proportionately larger change in the quantity demanded, and price inelastic if a change in price causes a proportionately smaller change in the quantity demanded. There are many factors that can influence the price elasticity of demand for a product, but two important ones are:Availability of substitutes: The availability of substitutes refers to the extent to which consumers can switch to alternative products or services if the price of a particular product increases. If there are many close substitutes available, consumers are likely to be more price sensitive, because they have options to choose from if the price of the product they prefer increases. This means that the PED for the product is likely to be higher. On the other hand, if there are few or no close substitutes available, consumers are likely to be less price sensitive, because they have fewer options to choose from if the price of the product increases. This means that the PED for the product is likely to be lower.Necessity or luxury good: Whether a product is considered a necessity or a luxury good can also influence the price elasticity of demand. Necessity goods are products or services that are considered essential for consumers, such as food, housing, or healthcare. Luxury goods, on the other hand, are products or services that are considered non-essential or discretionary, such as high-end fashion, jewelry, or entertainment. Consumers are generally less price sensitive when it comes to necessity goods, because they are less able or willing to reduce their consumption of these goods even if the price increases. This means that the PED for necessity goods is likely to be lower. On the other hand, consumers are generally more price sensitive when it comes to luxury goods, because they have more flexibility to reduce their consumption of these goods if the price increases. This means that the PED for luxury goods is likely to be higher.
Step-by-step explanation:
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