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Economics IGCSEPDF 34
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What affects PED?
•No.ofsubstitutes: if a product has many substitute products it will have an elastic demand.
For example, Coca-Cola has many substitutes such as Pepsi and Mountain Dew. Thus a
change in price will have a greater effect on its demand (If price rises, consumers will quickly
move to the substitutes and if price lowers, more consumers will buy Coca-Cola).
• Time period: demand for a product is more likely to be elastic in the long run. For example, if
the price rises, consumers will search for cheaper substitutes. The longer they have, the more
likely they are to find one.
• Proportion of income spent on commodities: goods such as rice, water (necessities) will
have an inelastic demand as a change in price won’t have any significant effect on its demand,
as it will only take up a very small proportion of their income. Luxury goods such as cars on the
other hand, will have a high price elastic demand as it takes up a huge proportion of consumers’
incomes.
Relationship between PED and revenue and how it is helpful to producers: