(Solved): 1. Determinants of the price elasticity of demand Consider some determinants of the price elasticit ...

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 without any close substitutes is likely to have relatively demand, since consumers cannot easily switeh to a substitute good 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 most elastic demand? A heart valve for heart attack victims Diamond necklace 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 falis in between. 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 eiastic in the short run than in the long run.