is usually negative. There is an alternative scenario where demand will increase as price does so too. This happens only in the case of Giffen goods, where elasticity is positive. The formula for price elasticity of demand is:

Percentage Change in Quantity Demanded

One determinant of price elasticity is the number and closeness of substitutes there are available for a good. The closer the goods are, the greater will be the price elasticity of demand of that good. The reason for this being that people will be able to switch to the substitutes when the price of the original good goes up. The greater the number of substitutes and the closer they are, the more people will be able to switch, and so the bigger the substitution effect will be of any price rise.

Another determinant is the proportion of income spent on the good. The higher the proportion of our income that is spent on a good, the more we will forced to cut back consumption in the event of a price rise, so the bigger the

One other determinant of price elasticity of demand is the time period. When prices rise people may take time to adjust their consumption patterns and find alternatives. The longer the time after a price change, then, the more elastic is demand likely to be.

The level of income of the consumers is the last determinant factor of income elasticity of demand. Poor people will behave differently, in the event of a rise income, to a rich person. For example, for a given rise in income, a poor person may buy a lot more butter whereas a rich person might only buy a little bit more.

As the average national salary is now at a high level, people may be able to afford cars, so this may discourage the use of rail and coach transport. However, in some cases it may cheaper to use a coach than many cars, for example a day trip to the seaside.

The price elasticity of rail transport is fairly inelastic, so it may be cheaper to just use the car from the start. The cross elasticity's of the coach and rail transport may be high in some places and low in others, so it may be pointless limiting yourself to one type transport as it will simply pile on the costs. The income elasticity of the coach is very high, so even a little increase may pinch your pocket a little too hard.

In the long term it may be cheaper to buy a car than use road or rail transport, as the money saved by using the car would eventually cover the costs of buying and maintaining the car.

Cross Price elasticity of demand is a measure of the responsiveness of demand for one product to a change in the price of a complement or substitute good. The formula for cross elasticity of demand is:

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