The basic idea of elasticity — the relationship between a percentage change in one variable and the percentage change in another variable — does not just apply to the responsiveness of quantity demanded to changes in the price of a product. You will recall that quantity demanded (Qd) depends on income, tastes and preferences, the prices of related goods and so on, as well as price. Elasticity can be measured for any determinant of demand, not only the price.
Which of the following are non-price determinants of demand?
- Number of firms
- Price of complements
- Price of substitutes
The non-price determinants of demand are income, taste, the prices of related goods – complements and substitutes and fashion. Factors such as the number of firms and technology are non-price determinants of supply.
In the following section, we will deal with the relationship between income and the demand for goods and services which is measured by income elasticity and the relationship between the price of related goods and demand which is measured by cross elasticity.