Assignment:
Determinants of Price Elasticity of Demand
There are three factors that affect price elasticity of demand: number of available substitutes for the commodity, proportion of income spent on the commodity, and luxury vs. necessity nature of the commodity.
1. Substitutability
All else constant, the larger the number of available substitutes for a commodity, the _____ is the price elasticity of demand for that commodity.
Explain why with an example. You may refer to Table 6.3 that reports price elasticity data for a wide range of products.
2. Proportion of Income
All else constant, the larger the share of income spent on a commodity in consumer's budget, the _____ is the price elasticity of demand for that commodity.
Explain why with an example. You may refer to Table 6.3.
3. Luxuries versus Necessities
All else constant, the more a commodity is perceived as a luxury rather than a necessity, the _____ is the price elasticity of demand for that commodity.
Explain why with an example. You may refer to Table 6.3.
Materials for Lecture 5
Start with textbook to get familiar with content and progression of the lecture. Then, go to videos (and supplemental articles, if provided) for further clarification and additional examples.
Textbook
Read carefully pages 135-137 and 139-142 from textbook.
Video
Price Elasticity of Demand
https://www.youtube.com/watch?v=4oj_lnj6pXA&list=PL336C870BEAD3B58B&index=17
Determinants of Price Elasticity of Demand
https://www.youtube.com/watch?v=EafTlle73ic&list=PL336C870BEAD3B58B&index=18
Alternative series of lectures on price elasticity of demand
https://www.khanacademy.org/economics-finance-domain/microeconomics/elasticity-tutorial/price-elasticity-tutorial/v/price-elasticity-of-demand