Classification of Price Elasticity of Demand

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Classification of Price Elasticity of Demand 1. Price Elastic Demand (% ΔQd > % ΔP) ϵ > 1 If the value of price elasticity coefficient is greater than one in absolute value. This means that a small change in price results to a greater change in quantity demanded. Goods which are elastic tend to have some or all of the following characteristics: They are luxury goods They are expensive and a big % of income e.g. sports cars and holidays Goods with many substitutes and a very competitive market. E.g. if Simsbury’s put up the price of its bread there are many alternatives, so people would be price sensitive Bought frequently Graph: We say a good is price elastic when an increase in prices causes a bigger % fall in demand. e.g. if price…show more content…
For example, if Sky increase the cost of premiership pay per view, many football fans will pay the extra price. Though because it isn’t a necessity, demand may be less inelastic than say petrol. Tap water. For householders, tap water is a necessity, with no alternatives. If the water company increase the cost of water bills, people would keep buying the service. It would have to rise to a very high price before people disconnected their water supply. This is why tap water is regulated. Diamonds. Bought very infrequently, diamonds are the ultimate luxury with few exact alternatives. You could buy other precious gems, but others may not have the same allure as diamonds. A cut in price wouldn’t increase demand very much. Peak rail tickets. For commuters who rely on the train to get to work in London, demand will be very inelastic. If price of fares from Surbiton to London increase, demand will only fall by a small amount. The alternatives for commuting into London, such as driving are limited. Apple iPhones, iPads. The Apple brand is so strong that many consumers will pay a premium for apple products. If the price rises for apple iPhone, many will continue to buy. If it was a less well known brand like Dell computers, you would expect demand to be price elastic. References: 3. Unitary Elastic Demand (% ΔQd = % ΔP) ϵ < 1 If the value of elasticity

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