Explain the concept of Price Elasticity of Demand. Explain using suitable examples the various determinants of Price Elasticity of Demand.

Price Elasticity of Demand refers to the responsiveness of quantity demanded to a change in the price of a product or service. It is a measure of how sensitive consumers are to changes in the price of a product or service. If the price elasticity of demand is high, it indicates that a small change in the price of a product or service will have a significant impact on the quantity demanded. On the other hand, if the price elasticity of demand is low, it indicates that a change in the price will have little impact on the quantity demanded. Determinants of Price Elasticity of Demand include: 1. Substitutability: If there are close substitutes available for a product or service, the price elasticity of demand will be high. For example, if the price of Coca-Cola increases, consumers may switch to Pepsi. 2. Luxury vs. Necessity: Luxury goods tend to have a high price elasticity of demand, while necessities tend to have low price elasticity of demand. For example, if the price of a luxury car increases, consumers may choose to purchase a less expensive model, while if the price of a necessary medication increases, consumers are likely to continue purchasing it regardless of the price. 3. Income: Products or services that represent a significant portion of a consumer's income tend to have a high price elasticity of demand. For example, if the price of gasoline increases, consumers may reduce their driving to compensate for the increased cost. 4. Time: The amount of time consumers have to adjust to a change in price also affects price elasticity of demand. In the short run, demand tends to be less elastic, while in the long run, demand becomes more elastic. For example, if the price of airline tickets increases, consumers may not be able to change their travel plans immediately, but over time they may choose to fly less or find alternative means of transportation. Overall, understanding the determinants of price elasticity of demand can help businesses make informed decisions about pricing strategies and product offerings.