One reason price changes affect quantity demanded is that they change how much a consumer can buy; a change in the price of a good or service affects the purchasing power of a consumer’s income and thus affects the amount of a good the consumer will buy This effect is stronger when a good or service is important in a typical household’s budget A change in the price of jeans, for example, is probably more important in your budget than a change in the price of pencils Suppose the prices of both were to double You had planned to buy four pairs of jeans this year, but now you might decide to make with two new pairs A change in pencil prices, in contrast, might lead to very little reduction in quantity demanded simply because pencils are not likely to loom large in household budgets The greater the importance of an item in household budgets, the greater the absolute value of the price elasticity of demand is likely to be Time Suppose the price of electricity rises tomorrow morning What will happen to the quantity demanded? The answer depends in large part on how much time we allow for a response If we are interested in the reduction in quantity demanded by tomorrow afternoon, we can expect that the response will be very small But if we give consumers a year to respond to the price change, we can expect the response to be much greater We expect that the absolute value of the price elasticity of demand will be greater when more time is allowed for consumer responses Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 250