Authors libby rittenberg 250

One reason price changes affect quantity demanded is that they change
how much a consumer can buy; a change in the price of a good or service
affects the purchasing power of a consumer’s income and thus affects the
amount of a good the consumer will buy. This effect is stronger when a
good or service is important in a typical household’s budget.
A change in the price of jeans, for example, is probably more important in
your budget than a change in the price of pencils. Suppose the prices of
both were to double. You had planned to buy four pairs of jeans this year,
but now you might decide to make do with two new pairs. A change in
pencil prices, in contrast, might lead to very little reduction in quantity
demanded simply because pencils are not likely to loom large in household
budgets. The greater the importance of an item in household budgets, the
greater the absolute value of the price elasticity of demand is likely to be.

Time
Suppose the price of electricity rises tomorrow morning. What will happen
to the quantity demanded?
The answer depends in large part on how much time we allow for a
response. If we are interested in the reduction in quantity demanded by
tomorrow afternoon, we can expect that the response will be very small.
But if we give consumers a year to respond to the price change, we can
expect the response to be much greater. We expect that the absolute value
of the price elasticity of demand will be greater when more time is allowed
for consumer responses.

Attributed to Libby Rittenberg and Timothy Tregarthen
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