Factors affecting P.E.D

• Availability of substitutes

  • Goods that have close substitutes will tend to have elastic demand .This is because consumers can easily switch from one product to another.

  e.g when the price of strawberry jam increases, customers can easily switch to a substitute like plum jam.

  • Goods that have few or no real subsititutes will have inelastic demand .

  e.g petrol
• Degree of necessity

  • Essential goods have inelastic demand

  e.g food and fuel.

  • Non-essential goods have elastic demand

  e.g sports cars and holidays
• Proportion of income spent on a product

  • When large proportions of income are spent on a product, the demand will be elastic.
  • Price changes for high value products lead to significant changes in demand eg. TV
  • When a smaller proportion of income is spent on a product, the demand will be inelastic

  e.g pencils,salt
• Time

  • Short-term goods have inelastic demand.
  • This is because it will take time for consumers to find subsitutes when prices rise.
  • Long-term goods have elastic demand.
  • This is because consumers can search for subsitutes and are more willing or prepared to switch.
• Durability of a good

  • Durable goods have inelastic demand.
  • This is because even if the price reduces, the consumers already have the good and will not need more. eg.furniture,cars,TV
  • Perishable goods have elastic demand.
  • This is because consumption(qty dd) will increase even when price is reduced by a small percentage.
• Demand for goods whose use can be postponed

  • Goods whose use can be postponed will have elastic demand.
  • This is because if the price increases, consumers will not need the good immediately.
  • Goods with urgent use have inelastic demand.
  • This is because even with an increase in price, people will still need the good. eg.medicine
• Habit Forming Ability

  • Habitual goods such as alcohol which are addictive will have inelastic demand .
  • This is because a big change in price will only lead to a small change in qty dd because the consumers are addicted and cannot do without such goods.
• Goods Having Several Uses

  • Demand for multipurpose goods is elastic.

  e.g coal is used for cooking,heating and industrial purposes.