To understand determinants of PED, we have to understand what is PED first. So the price elasticity of demand is the estimate of change in price of a particular good to the change in price of that good which can be known from the Law Of Demand which states that a fall in price of a good, leads to increase in quantity demanded or it poses an inverse relationship with price. If there is elasticity in demand revenue will increase by reducing price, whereas if it is inelastic the price will rise and revenue will be less.
Determinants Of Price Elasticity Of Demand- Nature of product- Classified as basic needs, luxurious & comfort. Basic needs are the products which have no substitutes (Electricity, Salt, etc.) and the customer is ready to pay for it no matter if price rise or fall, so it is inelastic in nature. Whereas luxurious product are more elastic because it changes as price increases or decreases, suppose a car, if price decreases the sales increases and vice-versa and comfort products are those products which are essential but vary according to price.
- Price of substitute product- Demand of the product may vary according to the changes in substitutes products price decreases the price of the product should also go down otherwise it will not exist in the market.
- Income Of Consumers- According to income of consumers the demand of product vary because low income consumer cannot purchase the high value products and high income consumer were not likely to use the low value products.
- Advertisement- Suppose X brand of toothpaste advertises more with different famous personalities as compared to Y brand of toothpaste but the product is more relevant than X brand, so people still buy X brand of toothpaste because some famous personality is their in advertisement so consumer made their mind that if a famous personality is using the product so they think it is a better product and they will purchase the product.
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