- 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
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.
Gillian Bayford
Jun 16, 2025I want to use this medium to share my incredible manifesting with Dr. Kachi, who truly changed my life. For a long time, I struggled with homelessness after losing my job as a nurse. Life felt like an endless battle, and I spent many years trying to win the lottery, hoping for a better future. But despite my efforts, I had no success and was growing increasingly frustrated. That was until I came across an amazing testimony from a woman named Natasha, who shared how Dr. Kachi helped her win the National EuroMillions jackpot. I had always loved playing EuroMillions, but winning seemed impossible for me. However, after seeing Natasha's story, I decided to reach out to Dr. Kachi prepared a special spell to help me with guaranteed lucky numbers. Within 24 hours, he provided me with the winning numbers and instructed me to play. To my amazement, I won £184.656 million in the EuroMillions! Thanks to Dr. Kachi, my life has been transformed, and my financial situation has changed for the better. I will never forget this joyful moment, as it has been the best thing to ever happen to me. If you’re struggling and seeking a way out, never give up. Dr. Kachi can help you, just as he helped me. Keep your faith and take a chance – your life could change too! contact website https://drkachispellcaster.wixsite.com/my-site his email drkachispellcast@gmail.com or his phone text or call number: +1 (209) 893-8075
briceladson19d3d1e959b51a4f50
Jun 18, 2025Wonderful Information, I had credit scores of 491 (TransUnion) 519 (Equifax) and 528 (Experian) in March. I applied for a mortgage loan in April and was not approved because of my low FICO scores. I asked a few questions on Reddit about how I get my credit fixed. I got some many recommendations about PINNACLE CREDIT SPECIALIST. So, I contacted him to which he responded swiftly. I explained everything about my credit to him, but I was skeptical about releasing my funds to him which he said he can fix my credit when the job is done, I pay for their services, and I agreed to that. After three days I got a notification from Experian saying Congrats, your FICO Score went up. I quickly logged in to check. This dude raised my scores to 801 (TransUnion), 809 (Equifax) and 811 (Experian). All negative items on my credit report have been removed. No inquiries, no collections. I’m very grateful. I just got higher credit card offers. Pinnacle Credit Specialist is the greatest. Hit him up by email: PINNACLECREDITSPECIALIST@GMAIL.COM or call +1 (409) 331-2269. Don’t forget to mention I Brice referred you to him.
Robert Alfred
Jun 19, 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
lisatancredi259cd36126829e42f7
Jun 21, 2025PINNACLE CREDIT SPECIALIST is the best credit repair service I have used and actually my last. My first impression of their service is a recommendable experience; I wasn't charged an outrageous fee on getting my credit fixed, which is unlike other credit repair companies, a friend recommended this to me when she got her credit fixed within 6 days through them, and I embraced the idea of no outrageous fee. But I got it all thanks to Pinnacle Credit Specialist, before this I went to several credit repair companies but I wasn't able to get my credit fixed not until I found the right one, thanks for existing for people like me, I strongly recommend Pinnacle Credit Specialist. Kindly hit them up by email: pinnaclecreditspecialist@gmail.com or call his phone +1 (409) 331-2269.
Michael Davenport
Jun 23, 2025I was recently scammed out of $53,000 by a fraudulent Bitcoin investment scheme, which added significant stress to my already difficult health issues, as I was also facing cancer surgery expenses. Desperate to recover my funds, I spent hours researching and consulting other victims, which led me to discover the excellent reputation of Capital Crypto Recover, I came across a Google post It was only after spending many hours researching and asking other victims for advice that I discovered Capital Crypto Recovery’s stellar reputation. I decided to contact them because of their successful recovery record and encouraging client testimonials. I had no idea that this would be the pivotal moment in my fight against cryptocurrency theft. Thanks to their expert team, I was able to recover my lost cryptocurrency back. The process was intricate, but Capital Crypto Recovery's commitment to utilizing the latest technology ensured a successful outcome. I highly recommend their services to anyone who has fallen victim to cryptocurrency fraud. For assistance, contact Recovercapital@cyberservices.com Capital Crypto Recover on Telegram OR Call Number +1 (336)390-6684 via email: Capitalcryptorecover@zohomail.com you can visit his website: https://recovercapital.wixsite.com/capital-crypto-rec-1
stuartcollis1145f5a7837f2f46d7
Jul 04, 2025I had a 3 year old credit card from capital one it’s was the only card I had, the limit is $300 they never graduated me, I didn’t know how to use it I also didn’t know they were 2 different dates on the card so I would pay it all off by 20th of each month and then by 22nd I spent it all off not knowing there was a statement date which eventually I learnt on the 25th of each month. So, then I had 6 late payments, and I didn’t know what to do, I was trying to rebuild my credit but every card I applied for got denied. Someone told me to wipe the whole card and its history off my report and start fresh. Because they said no credit is better than bad credit, and I was looking to rent an apartment but because of my credit I got denied several times. I needed someone to help me fix my credit; I was on a credit forum last month when a lady wrote about PINNACLE CREDIT SPECIALIST how they cleared her debt and increased her credit scores. I never believed what she said, but I decided to give them a try. I contacted them for repair assistance and I got a response immediately. They cleared out all negative items on my report including credit card debts and increased my scores to 800+ across three credit bureaus and also added positive tradeline within 14 days. They made it work for me. I have a clean profile now. My heart is full of gratitude. You can reach them by email: PINNACLECREDITSPECIALIST@GMAIL.COM OR Call +1 (409) 331-2269.
Robert Alfred
Jul 05, 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
aaronclerk001d6d984c683ee4c38
Jul 10, 2025Holy crap, I went to check my credit score today via Experian and myFICO, finally 811. My wife and I are impressed with the services of PINNACLE CREDIT SPECIALIST. Although I don’t expect this to last too long (I’m buying a house) it is something that I’m proud of. I don’t want this to come off as bragging, I only bring it up because if anyone has any questions about how I build my credit or the different aspects of my score I’m more than willing to help others. You can hit them up by email: PINNACLECREDITSPECIALIST@GMAIL.COM or call +1 (409) 331 2269. Don’t fail to let him know Aaron referred you to him.