Determinants of Price Elasticity of Demand

The video tutorial explains the concept of price elasticity of demand, using petrol and Dairy Milk chocolate as examples. It discusses the five main determinants: substitutability, necessity, income proportion, product definition, and time period. Each determinant is explored in detail, highlighting how they influence whether a product is elastic or inelastic. The tutorial concludes by emphasizing that the price elasticity of demand is a result of a combination of these factors.

What happens to the demand for an inelastic product like petrol when its price increases by 10%?

• Demand increases

• Demand falls by less than 10%

• Demand falls by more than 10%

• Demand remains unchanged

Which factor makes Dairy Milk chocolate more elastic compared to petrol?

• Higher necessity

• Longer time period

• Better substitutes

• Higher income percentage

Why is petrol considered a necessity?

• It has many substitutes

• It is a luxury item

• It is inexpensive

• It is essential for daily commuting

How does the percentage of income spent on a product affect its price elasticity?

• Income percentage has no effect

• Higher income percentage makes it less elastic

• Higher income percentage makes it more elastic

• Lower income percentage makes it more elastic

What is the effect of a stricter product definition on its price elasticity?

• Has no effect

• Depends on the time period

• Makes it more elastic

• Makes it less elastic

In the long run, how might consumers respond to a rise in petrol prices?

• Continue using the same amount of petrol

• Switch to a more fuel-efficient car

• Increase their petrol consumption

• Stop using cars altogether

Why is demand generally more elastic in the long run than in the short run?

• Demand is always inelastic in the short run

• Consumers become less sensitive to price changes

• Prices tend to decrease over time

• Consumers have more time to find substitutes