Economics, 3rd Edition

Proportion of Income Devoted to the Product 

Some products have a relatively high price and take 

a larger proportion of income than others. Buying a new suite of furniture for a lounge, for example, 

tends to take up a large amount of income whereas buying an ice cream might account for only a tiny 

proportion of income. If the price of a three-piece suite rises by 10 per cent, therefore, this is likely to 

have a greater effect on demand for this furniture than a similar 10 per cent increase in the price of an 

ice cream. The higher the proportion of income devoted to the product the greater the price elasticity 

is likely to be.

Time Horizon 

Goods tend to have more elastic demand over longer time horizons. When the price of 

petrol rises, the quantity of petrol demanded falls only slightly in the first few months. Over time, however, 

people buy more fuel-efficient cars, switch to public transport and move closer to where they work. Within 

several years, the quantity of petrol demanded falls more substantially. Similarly, if the price of a unit of 

electricity rises much above an equivalent energy unit of gas, demand may fall only slightly in the short run 

because many people already have electric cookers or electric heating appliances installed in their homes 

and cannot easily switch. If the price difference persists over several years, however, people may find it 

worth their while to replace their old electric heating and cooking appliances with new gas appliances and 

the demand for electricity will fall.