Second, slope is calculated using the measurement units for price and quantity. In contrast,elasticity is calculated using percentage changes. As such, slope includes the measurement units(such as dollars per hot fudge sundae), whereas elasticity is just a number with no measurementunits. The value of slope changes if the measurement units change (such as cents versusdollars). Not so for elasticity. Elasticity is in relative values not absolute measurement units.
Three factors that affect the numerical value of the price elasticity of demand are the availability of substitutes, time period of analysis, and proportion of budget. A given good can have a different priceelasticity of demand if these determinants change.
Availability of Substitutes
: The ease with which buyers can find substitutes-in-consumptionaffects the price elasticity of demand. The general rule is that goods with a greater availability of substitutes is more sensitive to price changes. With more substitutes available,buyers can easily respond to price changes. Consider, for example, Auntie Noodles FrozenMacaroni Dinner, an enjoyable, nutritious, and satisfying meal. Unfortunately for the AuntieNoodles company, it is one of thousands of comparable food products on the market. Thenumber of available substitutes makes the price elasticity of demand extremely elastic.
Time Period of Analysis
: The longer the time period of analysis, the more responsive quantitiesare to price changes. Brief periods do not allow buyers the time needed to adjust their consumption decisions to price changes. Buyers need time to find substitutes-in-consumption.Longer time periods allow buyers the time needed to find alternatives. For example, the demandfor 4M Cable Television is not very elastic. Given the lack of close substitutes, buyers continue tobuy even though prices rise, especially for brief periods like a few months. However, givenenough time (years? decades?) buyers are able to seek out alternatives such as satellite dishes,and thus change their quantity demanded of cable television, resulting in a more elastic demand.
Proportion of Budget
: The price elasticity of demand depends on the proportion of the budgetthat buyers devote to a good. The rule is this: The larger the portion, the more responsivequantity demanded is to price changes. A house, for example, is a BIG budget item for mostnormal human beings. A relatively small change, say 1 percent on a $100,000 house, can make aBIG difference in the buyer's decision to buy. As such, relatively small changes in price are likelyto induce relatively large changes in quantity demanded.
MEASUREMENT OF ELASTICITY OF DEMAND1) PERCENTAGE METHOD
The credit for measuring the elasticity of demand by this method goes to Flux. That is why, it issometimes called Flux’s percentage method. According to this method, elasticity of demand is the ratio of the percentage (or proportionate) change in quantity demanded to a percentage (or proportionate)change in its price.