1. Determinants of the price elasticity of demand

Consider some determinants of the price elasticity of demand:

The availability of close substitute

Whether the good is a necessity or a luxury

How broadly you define the market

The time horizon being considered

A good without any close substitutes is likely to have relatively______________________ demand, since consumers cannot easily switch to a substitute good if the price of the good rises.

A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has themostelastic demand?

a) Yacht

b) A heart valve for heart attack victims

The price elasticity of demand for a good also depends on how you define the good.

Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between.

Categories Most Elastic In Between Least Elastic

Pants

Clothing

Boot-cut jeans

The price elasticity of demand is also affected by the given time horizon.

If the price of gasoline is relatively high for a long time, consumers are more likely to buy more fuel-efficient cars or switch to alternatives like

public transportation. Therefore, the demand for gasoline is _________________ elastic in the short run than in the long run.