Using Figure 1, analyse possible reasons for the differences in price elasticity of demand for the two products.

Figure 1 - Price elasticity of demand for two products

Loaf of bread	-0.2
Car	-2.5

Price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price. A value between 0 and -1 (like -0.2 for bread) indicates inelastic demand, meaning quantity demanded changes by a smaller percentage than price. A value less than -1 (like -2.5 for a car) indicates elastic demand, meaning quantity demanded changes by a larger percentage than price. The key reasons for this difference are: 1. **Necessity vs. Luxury:** Bread is a staple food, a necessity. People will continue to buy it even if the price rises. A car is a luxury for many; its purchase can be postponed. 2. **Proportion of Income:** Bread is a low-cost item that takes up a tiny fraction of a person's budget. A price change is barely noticeable. A car is a major expense, so consumers are very sensitive to price changes. 3. **Substitutes:** While one brand of bread has substitutes, bread itself has few. A car has many substitutes: other car brands, used cars, public transport, cycling, etc. More substitutes lead to more elastic demand.