Factors that Affect PED

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Complementary Goods

When you have two complementary goods, the cheaper one of the two will have inelastic demand.

Take, for example, shoelaces and shoes. Shoelaces are relatively inelastic, as they are seen as far cheaper than the main purchase, the shoes, so any changes will only be minor compared to the overall cost of the shoes and shoelaces

Factors that Affect PED

Availability of Substitutes

If there are substitutes readily available, then a product will have a higher price elasticity of demand.

The availability of substitutes makes it easier to switch from one good to another should the price of one good go up.

If a product has a close substitute, and there is a small rise in price, consumers will switch to the product whose price has not risen

e.g. Pepsi and Coke are close substitutes, thus they have high PED

Durability

The more durable a product, the greater its price elasticity of demand, because the consumer can postpone its replacement until such time as the price falls, and once the price falls then the consumer will be more willing to replace it

Cost of the Good

The more expensive the good, the more elastic it is.

For expensive things like cars, people are willing to shop around to find the best price, whereas for very cheap items like matches, the consumer is less likely to shop around to find a good deal

Proportion of Income Spent on the Good

A good which takes up a large portion of one's income will be more elastic than one which doesn't.

A rise in the price of this good will have a far bigger effect on one's income than a rise in the price of a good which takes up only a small portion of one's income

Necessity

The more necessary a good, the less elastic they will be - as they are essential purchases and thus any changes in price won't change how necessary they are

Factors that Affect PED