Cambridge International as and a level Economics Ebook

2
the relative expense of the product
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time.
The range and attractiveness of substitutes
Th
e greater the number of substitute products and the 
more closely substitutable those products are, the more 
we would expect consumers to switch away from a 
particular product when its price goes up (or towards 
that product if its price falls). A good example would 
be in the case of canned drinks where there are many 
types of cola, iced tea and fruit juice so a small change 
in price could see quite large changes in what consumers 
purchase.
It is important, however, to distinguish between the 
substitutability of products within the same group of 
products and substitutability with goods from other 
product groupings. For example, diff erent types of orange 
juice are a group of products in their own right; they are 
also part of a larger group of fruit juices and part of the 
even bigger category of products that we could label as 
‘drinks’. If we are concerned with the price elasticity of 
demand for a particular type of orange juice produced 
by a specifi c manufacturer, then it will probably have a 
fairly high PED because of the range of substitutes. As we 
aggregate products into groupings – such as ‘fruit juices’ 
or ‘all soft drinks’ – demand will start to become more 
price inelastic.
Other substitutability issues to consider include:
■ 
the quality and accessibility of information that consumers 
have about products that are available to satisfy particular 
wants and needs
■ 
the degree to which people consider the product to be a 
necessity
■ 
the addictive properties of the product, i.e., whether the 
product is habit-forming
■ 
the brand image of the product.
The relative expense of the product
A rise in price will reduce the purchasing power of a 
person’s income and hence the ability to pay. Th
e larger the 
proportion of income that the price represents, the larger the 
impact will be on the consumer’s income level of a change in 
the product’s price. For example, a 10% increase in the price 
of a fl ight to Pakistan will have a bigger impact than a 10% 
rise in the price of a bus trip into town. Th
e greater 
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Price (US$)
Quantity demanded
120
D
10
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140