Describe how the necessity of a good and the availability of substitutions impact price elasticity.

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Price elasticity of demand is simply percentage change in the quantity demanded for the product if there is 1% change in the price of the product. The demand is elastic if the absolute value of price elasticity is greater than 1 i.e. 1% change in price leads to more than 1% change in quantity demanded. On the other hand, the demand is called inelastic if the absolute value of the price elasticity is less than 1 i.e. 1% change in price leads to less than 1% change in quantity demanded.

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