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Determinants of PeD

C

chrisevans16

Member
In the text book / Course note it says the time period is a determinant of PeD "as it takes time to find alternative goods. The longer the time period the more elastic the demand." Please can someone explain this as I don't think it makes sense.

Brands of beer are very elastic and if I went to Asda tomorrow and saw Carling had gone up I would switch to Fosters straight away. On the other hand beer as a whole is very inelastic and if all beer had gone up it would take me a long time before I decided to switch to Wine. This seems to contradict the theory?

Cheers

Chris
 
Ah, but in the example you've given, you have varied the broadness of the product definition, ie you've said that a particular brand of beer has elastic demand because you have very close substitutes available (eg Carling vs Fosters), whereas "beer" has more inelastic demand as there are far fewer close substitutes to beer. This is the first bullet point in Module 3, Section 1.5 of the Course Notes.

But in your query below, you start off by talking about the time period. So if Asda (and all retailers in the UK), started charging a lot more for beer (maybe because the government increased the tax on beer), you wouldn't have much choice but to pay it in the short term (for example, you might be hosting a party at the weekend, so you really needed to buy some beer NOW), so demand in the short term would be relatively inelastic. However, in the long term, you might start buying beer in France, so demand for beer (bought in the UK) is more elastic in the long term than the short term.
 
Thanks for the reply.

I had been misreading it as the longer it takes to find a replacement good the more elastic it was and so if a replacement good can be found quickly then it is inelastic. What it really means is that in the long run demand is more elastic than the short run.

Thanks for the explanation :)
 
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