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Elasticity of Demand
Refers to the Flexibility of consumer's desires for a product
Existence of Substitues
The closer the substitutes and the more substitutes there are, the more elastic is demand
Share of the budget
The greater the share of the consumer's total budget spend on a good, the more elastic is demand
The length of time allowed for adjustment
The longer any price change persists, the more elastic is demand. Price elasticity is greater in the long-run than in the short run, and in the short-run that right now.
Time and the adjustment process
The response of consumers and producers to a change in market conditions will become more pronounced as time passes. This occurs because with time, consumers and producers are able to find substitutes.
- i.e. Demand for Gasoline
- Immediate-run: There is no time to adjust
- Short-run: Time to adjust, but only partially
- Long-run: Time to adjust fully