Price Elasticity of Demand: Four Factors Strolling Essay

Price Elasticity of Demand: Four Factors Strolling through the aisles at the local Boston Store led me to the Jeans department where I was overwhelmed with the selection: Guess, Ralph Lauren, Levi Strauss, Calvin Klein, and others. Which of these products would I purchase and how would the price elasticity of demand impact my decision? The definition of price elasticity is straightforward: "how much the quantity demanded changes when the price changes; the formula written as percent change in quantity demanded divided by the percent change in price" (NetMBA. N.D.). A good is considered elastic (>1) if a price change elicits a greater proportional change in quantity demanded. Inelastic (<1) indicates that a change in price will result in a proportionally smaller change in quantity demanded. Unit elastic (=) will present a roughly proportional change in quantity demanded for a price change. Four Factors of Influence Four factors influence and ultimately impact the price elasticity of demand for a given product: substitute availability, specific nature of the good, portion of income spent on the good, and time horizon available for the consumer to purchase.At first glance the Calvin Klein jeans were $80.00 however, as mentioned there were a myriad of substitutes priced lower from which to choose, and as such the greater the number of substitutes available the more elastic the good is considered. Regarding specific nature of the good; is it a luxury or a necessity? A luxury good will have a higher elasticity and in this case the jean purchase was more of a luxury than necessity. Portion of income spent on purchase explains that the greater percentage of income spent on the product the greater the elasticity. In this case the maximum jean price is $80.00 which does not represent a large….....