- Category
- >Financial Analytics
5 Factors Affecting the Price Elasticity of Demand (PED)
- Ritesh Pathak
- Jan 12, 2021
- Updated on: Nov 21, 2023
There’s a lot more to a “market” than merely buying and selling. A plethora of activities are undergone behind bringing a product into the market. It requires proper market research before deciding on the manufacturing of a new product.
Different concepts in economics explain all these backstage happenings of a market. One such concept is elasticity.
Elasticity measures the sensitivity of one economic variable against a change in another economic variable. We often hear about demand and supply in economics and also in elasticity.
(You can also check out: What is elasticity in economics and what are its types).
The demand and supply of a product are affected by several other factors like price. The quantity demanded of a product changes when there is either a surge or a decline in its price. This sensitiveness of demand against a change in price is explained by the Price Elasticity of Demand.
What is Price Elasticity of Demand?
Price Elasticity of Demand (PED) is an economic tool that measures the change in quantity demanded of a product when there is a fluctuation in its price.
The mathematical equation to calculate Price Elasticity of Demand is given as:
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
-
If this formula gives a number greater than 1, the demand is elastic. In other words, quantity changes faster than price.
-
If the number comes out to be less than 1, demand is inelastic. In other words, quantity changes slower than price.
-
If the number is equal to 1, the elasticity of demand is unitary. In other words, quantity changes at the same rate as price.
Since supply and demand are two related terms, a change in either of them will have an effect on the other.
Economists use price elasticity to understand the change in demand or supply given there is a price change. This helps them break down the working of the real economy.
Also sneak a peek at our blog on what is economics
5 Factors Affecting the Price Elasticity of Demand
A change in price does not always result in the same proportion of change in quantity demanded of a commodity.
For example, a small change in the price of Air Conditioner would cause a sharp rise in the quantity demanded, whereas a large change in the price of sugar won’t increase the quantity demanded to the same extent.
Several other factors affect the Price Elasticity of Demand (PED). Some goods are more sensitive or elastic while some are less. Availability of substitutes, type or nature of a product, income, price, and time are the five known factors that affect the PED.
1. Nature or type of Good
The Elasticity of Demand for a good is affected by its nature. Different goods can be a necessity good, a comfort good, or a luxury good for a person.
There is one more thing that is a single good can be a necessity for one person, a comfort for the second person, and a luxury for a third person. So, we can say that a good’s nature is relative.
Now, let us understand how nature affects the elasticity of demand.
i. A necessity good like vegetables, food grains, medicines and drugs, has an inelastic demand. Such goods are required for human survival so their demand does not fluctuate much against a change in their price.
ii. A comfort good like a fan, refrigerator, washing machine, etc., has an elastic demand as their consumption can be postponed for a time period.
iii. A luxury good like AC, Cars, Diamond has a relatively high elasticity of demand when compared to comfort goods.
“We've done price elasticity studies, and the answer is always that we should raise prices. We don't do that, because we believe -- and we have to take this as an article of faith -- that by keeping our prices very, very low, we earn trust with customers over time, and that that actually does maximize free cash flow over the long term.”
- Jeff Bezos, Amazon CEO
2. Availability of Substitutes
The Price Elasticity of Demand for a good, with a large number of substitutes available, is very high.
The possible reason behind this is that even a small rise in the price of such goods will induce its buyer to look for its substitutes. An example of this can be an FMCG product like a packet of chips. A rise of ₹2 on a packet of Lays will induce the buyer to go for Haldiram’s chips.
Thus, the availability of a large number of close substitutes increases the sensitivity against change in price, or we can also say that this increases the Price Elasticity of Demand.
3. Price Level
The price level of goods plays a major role in determining the price elasticity of demand. Goods that fall in a higher price segment are more likely to have high elasticity.
A price rise will further push them in the higher segment while even a small decline in the price can put them in the affordable segment. An example of this can be mobile phones or laptops. A person with a budget of 15k won’t go for a phone that is 20% more costly.
On the other hand, goods that belong to the low-price segment are generally inelastic or relatively less elastic. An example can be a packet of matchboxes. Even a sharp rise in its price won’t throw it into the high-price segment.
4. Income Levels
Our society is divided into different classes based on incomes and lifestyle. Upper-class people generally have a higher income and live a lavish life whereas the lower class people can’t afford luxury items because they have a low income.
Income levels have a considerable effect on the elasticity of demand. The Elasticity of Demand for a commodity is generally very low for higher income level groups. The change in prices does not bother people from such groups.
Whereas the Price Elasticity of Demand of a commodity is very high for people belonging to low-income level groups. Poor people are highly affected by the change in the prices of commodities.
5. Time Period
The price elasticity of demand varies directly with the time period. The given time period can be as shorts as a day and as long as several years.
The price elasticity of demand is directly proportional to the time period. This means the elasticity for a shorter time period is always low or it can be even inelastic.
The reason stated for this is the redundant human nature to change habits. We generally stick to a commodity and respond very late to the price changes. However, the elasticity of demand is high in a longer time period as our habit changes over time. We can substitute the original product if its price changes in the long run.
These were the factors that affect the Price Elasticity of Demand. Let us now sum up the blog by looking at the key takeaways.
Recommended Read: Micro vs Macro Economics
Elasticity vs Inelasticity
An inelastic product is one that has a very small effect on the quantity demanded even if there is a significant price change. It can also be said that the quantity demanded for inelastic goods remains almost static or has no effect of change in any economic factor.
Inelastic products are generally necessity products. Inelasticity of demand ensures that there is an adequate supply of such goods.
Since the quantity demanded is the same regardless of the price, the demand curve for a perfectly inelastic good is graphed out as a vertical line. Such goods have no good substitutes, which also ensures the quantity demanded remains unaffected.
Price-Demand curve for Elastic Demand
Manufactures or providers of inelastic goods and services can generate good revenue. For businesses, revenue generated from inelastic goods can go both ways. This means that it can prove profitable as well as marginal.
In case of price fall, the quantity demanded remains the same resulting in less revenue generation. While in times of price hike businesses earn significant profits.
This is the major benefit of inelastic goods over elastic ones. Manufactures or providers of inelastic goods and services can generate good revenue.
Key Takeaways
-
Elasticity of Demand is defined as the measure of change in the quantity demanded of a good when other economic variables like income and price are changed.
-
The three known types of Elasticity of Demand are: Price Elasticity of Demand (PED), Cross Elasticity of Demand (XED), and Income Elasticity of Demand (YED)
-
Throughout the blog, the concept of Price Elasticity of Demand (PED) has been focused on. It is defined as the sensitiveness of the demand of a commodity against a price change.
-
The formula given to calculate the Price Elasticity of Demand is
PED Formula
PED = % Change in Quantity Demanded / % Change in Price
On the basis of results obtained from the above formula, the Price Elasticity of Demand is categorized as elastic, inelastic, or unitary.
-
Inelastic Demand means that there is almost no effect of change in other economic factors on the quantity demanded of a good.
-
The Price Elasticity of Demand is affected by many factors. 5 crucial factors among them are: Availability of goods, Price Levels, Income Levels, Time Period, and Nature of goods.
Share Blog :
Or
Be a part of our Instagram community
Trending blogs
5 Factors Influencing Consumer Behavior
READ MOREElasticity of Demand and its Types
READ MOREAn Overview of Descriptive Analysis
READ MOREWhat is PESTLE Analysis? Everything you need to know about it
READ MOREWhat is Managerial Economics? Definition, Types, Nature, Principles, and Scope
READ MORE5 Factors Affecting the Price Elasticity of Demand (PED)
READ MORE6 Major Branches of Artificial Intelligence (AI)
READ MOREScope of Managerial Economics
READ MOREDifferent Types of Research Methods
READ MOREDijkstra’s Algorithm: The Shortest Path Algorithm
READ MORE
Latest Comments
tabithamaggard4b9bb79fcca004fda
May 24, 2025We wanted to purchase a house which we’ve been renting for 2 years and the landlord wanted to sell our house, and we would love to purchase it. After a brain tumor for my husband, the loss of a baby in December 2023, and cancer for last year our credit took a hit, and we wiped out our savings. Our Fico 8 was between 548 and 568. We had credit card debts, student loans and car loans. We needed at least 640 to get approved. We contacted this great credit specialist called PINNACLE CREDIT SPECIALIST. I can’t stop thanking them for the good they did on our credit. They helped us wipe all the negative items and raised our scores to 793. We have no debt now; they paid off all student loans and the final payment on our car loan. It’s been 2 weeks now since we purchased our home. The purchase price is 200k- the house is a heck of a deal, 3500 sq feet, 5 bedrooms, 2 bathrooms and sits half an acre in town. It only lacks a garage. I’m recommending them to anyone in need of credit assistance. Contact them via Email: PINNACLECREDITSPECIALIST@GMAIL.COM or call their mobile +1 (409) 331 2269.
Wendy Taylor
May 26, 2025My name is Wendy Taylor, I'm from Los Angeles, i want to announce to you Viewer how Capital Crypto Recover help me to restore my Lost Bitcoin, I invested with a Crypto broker without proper research to know what I was hoarding my hard-earned money into scammers, i lost access to my crypto wallet or had your funds stolen? Don’t worry Capital Crypto Recover is here to help you recover your cryptocurrency with cutting-edge technical expertise, With years of experience in the crypto world, Capital Crypto Recover employs the best latest tools and ethical hacking techniques to help you recover lost assets, unlock hacked accounts, Whether it’s a forgotten password, Capital Crypto Recover has the expertise to help you get your crypto back. a security company service that has a 100% success rate in the recovery of crypto assets, i lost wallet and hacked accounts. I provided them the information they requested and they began their investigation. To my surprise, Capital Crypto Recover was able to trace and recover my crypto assets successfully within 24hours. Thank you for your service in helping me recover my $647,734 worth of crypto funds and I highly recommend their recovery services, they are reliable and a trusted company to any individuals looking to recover lost money. Contact email Capitalcryptorecover@zohomail.com OR Telegram @Capitalcryptorecover Call/Text Number +1 (336)390-6684 his contact: Recovercapital@cyberservices.com His website: https://recovercapital.wixsite.com/capital-crypto-rec-1
kroppalbert575413f5ff624724a9c
May 27, 2025GET IN TOUCH WITH A PROFESSIONAL CRYPTO ASSET RECOVERY SPECIALIST NEAR YOU.My encounter with DUNE NECTAR WEB EXPERT proved to be fortuitous. Just recent, I was encumbered by a challenging situation and financial challenges stemming from an unsuccessful cryptocurrency venture. The preceding months had been exceptionally difficult. I encountered an incident that nearly destroyed my business and eroded the confidence I had built with my business associates over a long while. I was a victim of cryptocurrency-related fraud. I not only lost my capital but also incurred substantial debt from my associates over several months, in an effort to ensure the success of this cryptocurrency investment; however, I was instead overwhelmed by debt. I was denied the opportunity to withdraw my funds or to terminate my involvement with this investment platform. I subsequently discovered DUNE NECTAR WEB EXPERT, a private investigative and cryptocurrency asset recovery specialist. I learned of their assistance to numerous victims of online fraudulent schemes and how they managed to recover their lost funds. I am profoundly grateful to DUNE NECTAR WEB EXPERT for their honesty and compassion throughout the process of assisting me in the successful recovery of my crypto and the profit I believed to have lost on this platform. I intend to publicly acknowledge the exceptional professionalism and organizational capabilities of DUNE NECTAR WEB EXPERT, a private investigative and cryptocurrency asset recovery specialist. The loss of millions of dollars in cryptocurrency would have significantly destabilized my life, but due to the intervention of the DUNE NECTAR WEB EXPERT team, who facilitated the recovery of my lost and compromised cryptocurrency, this was averted. I offer a prayer for the continued blessings upon the DUNE NECTAR team.Support (@) Dunenectarwebexpert (.) ComTelegram| DUNENECTARWEBEXPERT
Robert Alfred
May 29, 2025CRYPTO SCAM RECOVERY SUCCESSFUL – A TESTIMONIAL OF LOST PASSWORD TO YOUR DIGITAL WALLET BACK. My name is Robert Alfred, Am from Australia. I’m sharing my experience in the hope that it helps others who have been victims of crypto scams. A few months ago, I fell victim to a fraudulent crypto investment scheme linked to a broker company. I had invested heavily during a time when Bitcoin prices were rising, thinking it was a good opportunity. Unfortunately, I was scammed out of $120,000 AUD and the broker denied me access to my digital wallet and assets. It was a devastating experience that caused many sleepless nights. Crypto scams are increasingly common and often involve fake trading platforms, phishing attacks, and misleading investment opportunities. In my desperation, a friend from the crypto community recommended Capital Crypto Recovery Service, known for helping victims recover lost or stolen funds. After doing some research and reading multiple positive reviews, I reached out to Capital Crypto Recovery. I provided all the necessary information—wallet addresses, transaction history, and communication logs. Their expert team responded immediately and began investigating. Using advanced blockchain tracking techniques, they were able to trace the stolen Dogecoin, identify the scammer’s wallet, and coordinate with relevant authorities to freeze the funds before they could be moved. Incredibly, within 24 hours, Capital Crypto Recovery successfully recovered the majority of my stolen crypto assets. I was beyond relieved and truly grateful. Their professionalism, transparency, and constant communication throughout the process gave me hope during a very difficult time. If you’ve been a victim of a crypto scam, I highly recommend them with full confidence contacting: Email: Recovercapital@cyberservices.com Telegram: @Capitalcryptorecover Call/Text: +1 (336) 390-6684 Website: https://recovercapital.wixsite.com/capital-crypto-rec-1
michaelweston5481cee9b4b6ba14723
May 31, 2025I will forever keep thanking this amazing company called PINNACLE CREDIT SPECIALIST for the help. After I had a fatal accident 6 months ago, I went to apply for a loan to enable me to pay up my medical bills which didn’t come through because my credit score is in the 499 range coupled with student’s loan. Thanks to Grandma who mentioned how they helped Grandpa, and she encouraged me to hire Pinnacle Credit Specialist, to my great surprise, 14 days after I made an initial deposit, my scores were raised to 811, medical bills, student loans cleared, and they added good trade lines. I would love to recommend them to anyone in need of a credit repair service. Contact them via: pinnaclecreditspecialist@gmail.com or call +1 (400) 331-2269.
Robert Alfred
Jun 04, 2025CRYPTO SCAM RECOVERY SUCCESSFUL – A TESTIMONIAL OF LOST PASSWORD TO YOUR DIGITAL WALLET BACK. My name is Robert Alfred, Am from Australia. I’m sharing my experience in the hope that it helps others who have been victims of crypto scams. A few months ago, I fell victim to a fraudulent crypto investment scheme linked to a broker company. I had invested heavily during a time when Bitcoin prices were rising, thinking it was a good opportunity. Unfortunately, I was scammed out of $120,000 AUD and the broker denied me access to my digital wallet and assets. It was a devastating experience that caused many sleepless nights. Crypto scams are increasingly common and often involve fake trading platforms, phishing attacks, and misleading investment opportunities. In my desperation, a friend from the crypto community recommended Capital Crypto Recovery Service, known for helping victims recover lost or stolen funds. After doing some research and reading multiple positive reviews, I reached out to Capital Crypto Recovery. I provided all the necessary information—wallet addresses, transaction history, and communication logs. Their expert team responded immediately and began investigating. Using advanced blockchain tracking techniques, they were able to trace the stolen Dogecoin, identify the scammer’s wallet, and coordinate with relevant authorities to freeze the funds before they could be moved. Incredibly, within 24 hours, Capital Crypto Recovery successfully recovered the majority of my stolen crypto assets. I was beyond relieved and truly grateful. Their professionalism, transparency, and constant communication throughout the process gave me hope during a very difficult time. If you’ve been a victim of a crypto scam, I highly recommend them with full confidence contacting: Email: Recovercapital@cyberservices.com Telegram: @Capitalcryptorecover Call/Text: +1 (336) 390-6684 Website: https://recovercapital.wixsite.com/capital-crypto-rec-1
davidbundy167448cec9564e14ebd
Jun 06, 2025I (54M) just got my new credit score, and I need a place to crow about it. It’s 712. I’m over 700 for the first time in my life thanks to PINNACLE CREDIT SPECIALIST. My credit score was in the crapper for decades. My wife and I finally went through bankruptcy about 14 years ago. As is usually the case, we started getting credit repair offers a couple years after the bankruptcy by credit repair companies. We were very selective, and careful about not overextending, life did what life does, and we had ups and downs. I lost my job when the company for which I worked closed, and the gig economy only did so much for me. I helped open a business with a partner and sold my final stake in that business two years ago. With these ups and downs, my credit score had taken a few hits since the bankruptcy, but my wife and I have focused on eliminating debts, paying things off early whenever possible but still didn’t help boost our scores. Earlier this year we contacted PINNACLE CREDIT SPECIALIST and explained our predicaments to him which he assured us of helping us. He gave us a list of software to purchase, and in the last two months we came up with the money and purchased them. A few days after they started our credit repair journey I started seeing some changes in my credit report. I’ve been watching my scores regularly, and started to get a lot of credit offers when my score got close to 670. Recently I was surprised when a company with which I hold an account suggested I apply for their gold card. Per the disclaimers, they reserved the right to either decline credit or giver a lower tier card (e.g. silver, standard). I was shocked when I was approved. It has the largest credit line I have ever been offered. That, in and of itself, is likely what pushed me over the threshold into the low 700s, since it significantly changed the ratio of balances held to credit available. I think I’m still in shock. If you’re struggling to build your credit, especially after a rough stretch or bankruptcy, know that Pinnacle Credit Specialist is always there for you. They’ll get you there so easily without stress. Hit him up by email: PINNACLECREDITSPECIALIST@GMAIL.COM OR CALL +1 (409) 331-2269.
Katherine Griffith
Jun 09, 2025Hello everyone, I wish to share my testimonies with the general public about Dr Kachi for helping me to win the LOTTO MAX, i have been playing all types of lottery for the past 9years now. the only big money i have ever win was $3000 ever since things became worse to enduring because i couldn’t been able to win again, i was not happy i need help to win the lottery, until the day i was reading a newspaper online which so many people has talked good things about best lottery cast Dr Kachi who can change your life into riches. So I contacted him and he cast the spell and gave me the hot figures. I played the LOTTO MAX DRAW Behold when I went to check and to my greatest surprise my name came out as one of the winners. I won $60 Millions Dr Kachi, your spell made it wonderful to win the lottery. I can't believe it. Thank you so much sir for dedicating your time contact: drkachispellcast@gmail.com OR Call/WhatsApp: +1 (209) 893-8075 his Website: https://drkachispellcast0.wixsite.com/my-site
williambonner2477d4c52cc72e04154
Jun 11, 2025Hi, I want to thank the Members of this Forum, you guys have been a great help to my credit journey. A few years ago, I messed up my credit. I had a few charge offs from Discover bank, Capital one bank, and Chase bank. After a month with PINNACLE CREDIT SPECIALIST, I was able to get all 3 charge offs removed. Now I have started to build my credit with a clean slate. Back in April 2025 I was approved for a US bank secured credit card with a $5,000 limit. I recently got a pre-approval from capital one for savor, this morning I took the offer and was instantly approved for the $5,000 limit. My current score is Experian 782 TransUnion 746 EQUIFAX 764 these are fico scores. I currently have no late payments, no charge offs and no collections or public records. My current utilization is at 6.4%. Also, I can’t seem to understand why my EQUIFAX score is so low compared to other credit agencies. Pinnacle Credit Specialist has done it for me, and I want the world to know about him. Contact him via: PINNACLECREDITSPECIALIST@GMAIL.COM or call +1 (409) 331-2269
michellefreed209a0258a69b024d2d
Jun 14, 2025I needed help I was involved in an accident on December 1st and I had to pay the medical bill by Jan 1st and my lawyer was handling all of the process and my medical bills and all that, my lawyer ensured that she will file the medical bills form by herself, and now when I check my credit score I have a collection on it for that hospital bill and it has dropped my scores to 569. I was so fucking pissed out, that motherfucking bill fucked me over. I read about PINNACLE CREDIT SPECIALIST on this platform, and I took the risk because I was scared of trusting a huge amount of money and my personal information to a total stranger, but I decided to give him a try. I’m marveled by the results I got afterwards. They deleted the medical bills from my report including other negative items and late payments. I now have an excellent score of EQ 801, EX 809 and TU 811. All this happened within 6 days. Contact: PINNACLECREDITSPECIALIST@GMAIL.COM or call +1 (409) 331-2269.