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Factors Affecting Elasticity

Interactive!!

EX: Your hair stylist raises the price of getting a hair cut by $40!! that is 2x as much as you usually pay, you continue to pay $40 for 2 years until you find a decent/affordable hair stylist that charges $15 for haircuts

What Factor of Elasticity is affecting your demand of getting a haircut?

4.Change over Time

  • Change in price requires time for consumers to adjust, due to the time it takes to find substitutes for their goods.
  • Because it takes time to find substitutes their demand is inelastic in short term
  • After some time passes demands can become more elastic due to the substitutes that allow for larger adjustments

1.Availability of Substitutes

  • When there are few or no substitutes for a good then your demand is inelastic
  • Ex: YZY's; you are planning to buy these shoes and they don't sell them anywhere else then you will buy them even if the price greatly increases from $100-$600
  • A wide choice of substitute goods can make your demand elastic(ex. you want hamburgers but in-n-out has increased the price of hamburgers by $2, you can go to McDonald'ds, Five Guys etc. to get a cheaper Hamburger)

2.Relative Importance

  • Another way of determining if your demand is elastic or inelastic is to determine how much of your budget you spend on the good.
  • If you have to adjust yourself or your budget due to the increase in price of the good that you purchase then your demand is elastic
  • If you don't have to adjust yourself or your budget due to the increase in price of the good that you purchase then your demand is inelastic

3.Necessities Versus Luxuries

  • Another way of determining a good's elasticity is whether you consider the good to be a luxury or a necessity
  • Necessity = good that people will always buy, even when the price increases.(inelastic)
  • Luxury = good that people will most likely not buy when the price increases(elastic)
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