Three Factors affect the elasticity of demand:

FACTOR 1 Substitute Goods or Services

• If no substitute for a product, demand tends to be inelastic

when price of insulin goes up, diabetics still need the same amount

• If there are substitutes for a product, demand tends to be elastic

when price of beef goes up, consumers can buy other meats

FACTOR 2 Proportion of Income

• Demand for expensive items tends to be elastic

if percentage of income needed to buy item increases, demand decreases

• Demand for inexpensive items tends to be inelastic

rise in price requires small additional part of income

• Rise in income can lead to greater demand for some goods or services

FACTOR 3 Necessity or Luxury

• Necessitysomething needed for life

demand for necessities is inelastic

• Lux
• luxurysomething desired but not essential

demand for luxuries tends to be elastic

USE THE FOLLOWING ANSWERS TO ANSWER THESE 6 QUESTIONS

a. tends to be more elastic

b. tends to be inelastic

c. price

d. decrease

e. necessities

f. luxuries

1. According to what you read, what is the elasticity of demand for insulin?

2. According to what you read, what happens to the elasticity of demand for beef whenever price increases?

3.Demand for expensive items tends to be elastic - if percentage of income needed to buy item increases, demand _____________

4.Demand for inexpensive items tends to be inelastic rise in ______________ requires small additional part of income

5. Necessitysomething needed for life demand for ________________ is inelastic

6. Luxurysomething desired but not essential demand for ________________ tends to be elastic