Price elasticity of demand - Essay Example

Price elasti of Demand Price elasti of demand refers to the measure of the degree of change in the quantity demanded of a given product to changes in the price of that product (Mankiw 90).Ed= % change in quantity demanded of a product % change in the price of the product The key determinants of price elasticity of demandSubstitution possibility; whenever there is a large number of close substitutes; the price elasticity of demand becomes elastic. In such cases, if there occurs and increase in one of the possible substitutes, consumers will switch to the next available substitute that is relatively cheaper.

The easier it is to swap, the more elastic the demand of such a product is (Mankiw 90).Type of want is satisfied by product; if the product satisfies basic needs or necessities such as medical care, basic food stuff and housing, then the price elasticity of such products will be inelastic, ceteris Paribas. However, if the product in question satisfies other luxurious wants such as entertainment and swimming pools, then its price elasticity of demand will be elastic.Time elapsed since price change; if it is in the short run, the price elasticity of that given product will be inelastic because consumers do not have adequate time to respond to such a price change.

If it is in the long run, the price elasticity of such goods will be elastic, ceteris paribus since consumers will have enough time to respond to such price changes that my involve switching to the immediate substitutes which are relatively cheaper or even abandon the product completely, if it is not a necessity (Mankiw 91).Bottled water; bottled water have a close substitute, tap water because they can all quench thirst. Hence, bottled water is price elastic. Toothpaste; there are many varieties of toothpaste in the market, ranging from Colgate to Close-up.

This shows that it has a number of close substitutes hence elastic.Cookie dough ice cream; there are many varieties of ice creams and thus, their price elasticity of demand is elastic. It does not also fall under the class of necessities, hence, making it price elastic.Fresh green beans; fresh green beans can be classified as basic food stuff and for this reason, it is price inelastic.Gasoline; Gasoline can be classified as a necessity in the automotive industry and other various sectors of the economy; therefore, it is price inelastic.

Work CitedMankiw, N. Gregory. Principles of Economics. 6th ed. Fort Worth, TX: Cengage Learning, 2011. Print.