Determinants of PED
Elasticities of Demand
AO2
Syllabus requirement
Includes availability of substitutes, necessity vs luxury, time, proportion of income spent, and definition of the market.
Assessment objectives
AO2 Application and Analysis
Summary
This topic explains the main factors that determine the price elasticity of demand (PED) for a good or service: how many and how close substitutes are, whether the good is a necessity, the share of consumer income spent on it, and how much time consumers have to adjust. Understanding these determinants helps firms choose pricing strategies to influence total revenue and helps governments predict tax revenue effects. The extract also notes related concepts such as income elasticity of demand (YED) and allocative efficiency.
