ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Substitutes: Price elasticity of demand is fundamentally about substitutes. If it’s easy to find a substitute product when the price of a product increases, the demand will be more elastic. If there are few or no alternatives, demand will be less elastic.

Detailed explanation-2: -Usually, a good which is not a necessity or has numerous substitutes has elastic demand. Blue jeans are probably a good example of this kind of product, since there are so many brands of them. Inelastic demand means that consumers of that good are not highly sensitive (unresponsive) to price changes.

Detailed explanation-3: -The cross elasticity of demand for substitute goods is always positive because the demand for one good increases when the price for the substitute good increases. Alternatively, the cross elasticity of demand for complementary goods is negative.

Detailed explanation-4: -An example of products with an elastic demand is consumer durables. These are items that are purchased infrequently, like a washing machine or an automobile, and can be postponed if price rises. For example, automobile rebates have been very successful in increasing automobile sales by reducing price.

Detailed explanation-5: -The availability of alternatives or substitute goods can affect demand elasticity. 1 Hence, the demand for goods or services with many substitutes is highly price elastic; a small increase in the price levels of goods causes consumers to buy its substitutes.