4.1.3- Price Determination in a Competitive Market
The Determinants of the demand for Goods and Services
Seasonality
Unique Selling Points
Income
Tastes and Preferences
Substitute good availability
Price, Income and Cross Elasticities of Demand
PRICE ELASTICITY OF DEMAND (PED)
• The responsiveness of quantity demanded following a change in its own price
Determinants:
Time period allowed following a price change (longer=more elastic)
Habit
Income proportion spent on product
Substitute good availability
Peak demand
Off-peak demand
Necessity
Definition breadth (if broadly defined, more inelastic)
%Change in QD/%Change in Price
• An increase in price for an inelastic product= increased revenue
• An increase in price for an elastic product= decreased revenue
Perfectly Elastic=Horizontal, Perfectly inelastic=vertical
The Determinants of the demand for Goods and Services
Seasonality
Unique Selling Points
Income
Tastes and Preferences
Substitute good availability
Price, Income and Cross Elasticities of Demand
PRICE ELASTICITY OF DEMAND (PED)
• The responsiveness of quantity demanded following a change in its own price
Determinants:
Time period allowed following a price change (longer=more elastic)
Habit
Income proportion spent on product
Substitute good availability
Peak demand
Off-peak demand
Necessity
Definition breadth (if broadly defined, more inelastic)
%Change in QD/%Change in Price
• An increase in price for an inelastic product= increased revenue
• An increase in price for an elastic product= decreased revenue
Perfectly Elastic=Horizontal, Perfectly inelastic=vertical
