Consider some determinants of the price elasticity of demand: • Number of substitutes Whether the good is a necessity or a luxury • Percentage of one's budget spent on the good • Time horizon being considered ● demand since A good with many close substitutes is likely to have relatively consumers can easily choose to purchase one of the close substitutes if the price of the good rises. A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the most elastic demand? Sports car A heart valve for heart attack victims The price elasticity of demand for a good also depends on how you define the good. Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between. Categories Most Elastic In Between Least Elastic Wine Merlot Beverages The price elasticity of demand is also affected by the given time horizon. Other things being equal, the demand for natural gas will tend to be in the short run than in the long run. elastic

Elasticity measures the percentage change in quantity due to percentage change in price. 

The demand is said to be elastic when the absolute value of elasticity is greater than 1. 

The demand is said to be inelastic when the absolute value of elasticity is less than 1.