Factors Affecting Elasticity
Availability of Substitutes
If there are few substitutes for a good, then even
when its price rises greatly, you might still buy it.
Tickets to a concert (Inelastic or Unitary Elastic)
Life saving medicine (Inelastic or Unitary Elastic)
A wide choice of substitute goods can make
Choice of apple juice
How much of your budget you spend on the
If you already spend a large share of your income
on a good, price increase will force you to make
some tough choices.
If you currently spend half of your budget on clothes,
then even a modest increase in the cost of clothing will
probably cause a larger reduction in the quantity you
Your demand will be elastic
Necessities Versus Luxuries
A necessity is a good people will always
buy, even when the price increases.
Customers will continue to buy the same amount.
Customers will reduce the amount they request.
Change Over Time
People will buy a gas guzzler but as the price of
gas goes up their consumption will not change
right away until another substitute is found.
As price is lowered total revenue rises
As price rises total revenue falls
As price is lowered total revenue falls
As prices is raised total revenue rises.