Determinants of the price elas

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1. Determinants of the price elasticity of demand

Consider some determinants of the price elasticity of demand:

•	The availability of close substitutes
•	Whether the good is a necessity or a luxury
•	How broadly you define the market
•	The time horizon being considered

A good with many close substitutes is likely to have relatively (elastic / inelastic) demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.

A good’s price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand?

* Chemotherapy for cancer patients

* Yacht

The price elasticity of demand for a good also depends on how you define the good.

Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between.

Categories	Most Elastic	In Between	Least Elastic
Food
Red bell peppers
Vegetables

The price elasticity of demand is also affected by the given time horizon.

Other things being equal, the demand for natural gas will tend to be (less / more / no more, nor less) elastic in the short run than in the long run.

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