ECON 1050 Chapter 4: Economics-1 (1) (dragged) 2
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The factors that influence the elasticity of demand. The elasticity of demand for a good depends on: the closeness of substitutes, the proportion of income spent on the good, the time elapsed since a price change. The closer the substitutes for a good or service, the more elastic is the demand for the good or service. Necessities, such as food or housing, generally have inelastic demand. Luxuries, such as exotic vacation, generally have elastic demand. The greater the proportion of income consumers spend on a good, the larger is the elasticity of demand for that good. The more time consumers have to adjust to a price change, or the longer that a good can be stored without losing its value, the more elastic is the demand for that good. The figure alongside shows how the elasticity of demand changes along a linear demand curve. At the mid-point of the demand curve, demand is unit elastic.