Why is it that the price elasticities for some goods and services are high and for others low? One answer lies in tastes: If a good or service is a basic necessity in one’s life, then price variations have minimal effect and these products have a relatively inelastic demand.
A second answer lies in the ease with which we can substitute alternative goods or services for the product in question. The local music school may find that the demand for its instruction is responsive to the price charged for lessons if there are many independent music teachers who can be hired directly by the parents of aspiring musicians. If Apple had no serious competition, it could price the products higher than in the presence of Samsung, Google etc. The ease with which we can substitute other goods or services is a key determinant. It follows that a critical role for the marketing department in a firm is to convince buyers of the uniqueness of the firm’s product.
Where product groups are concerned, the price elasticity of demand for one product is necessarily higher than for the group as a whole: Suppose the price of one tablet brand alone falls. Buyers would be expected to substitute towards this product in large numbers – its manufacturer would find demand to be highly responsive. But if all brands are reduced in price, the increase in demand for any one will be more muted. In essence, the one tablet whose price falls has several close substitutes, but tablets in the aggregate do not.
Finally, there is a time dimension to responsiveness, and this is explored in The time horizon and inflation
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