#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
other characteristics to generally predict a good’s elasticity of demand include the portion of the typical budget that is spent on the good, the amount of time that is allowed to respond to the change in price, the extent to which the good is seen as necessary or optional.
In general, if consumers tend to spend a very small portion of their budget on a good, their demand tends to be less elastic than if they spend a very large part of their income. Most people spend only a little on, say, toothpaste each month, so it really doesn’t matter whether the price rises 10 percent or not. They would probably still buy about the same amount. If the price of housing were to rise significantly, however, most households would try to find a way to reduce the quantity they buy, at least in the long run.