Explain why the price elasticity of demand for two products may vary.

Price elasticity depends on several other components:

1. Availability of substitutes

2. The proportion of a consumer's disposable income which the products account for

3. Whether the products are addictive (consumers buy it out of habbit)

4. Whether the goods are a necessity or a luxury

The answer should be structured in the following way:

1. Define price elasticity of demand, give equation and possibly offer graphs showing two different levels of PED.

2. Give two or three reasons why (as above), explaining them where possible: e.g. The PED may vary dependent on the nature of the good - whether it is a luxury or necessity. This is because consumers will be forced to still buy necessities regardless of price, whereas a change in the price of a luxury good is likely to significantly change the quantity demanded.