Factors Determining Elasticity Of Demand

Elasticity Of Demand Factors Assignment Help

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Factors Determining Elasticity Of Demand

  • Nature of the Commodity. Demand for necessities of life and for conventional necessaries is usually less elastic, i.e. their demand does not vary much with rise or fall in price, or variation if any, is negligible, e.g. demand for food, minimum of clothing, etc. demand for luxuries, on the other hand, is more elastic.
  • Number of Uses of a Commodity. Demand for commodities having many uses is elastic, e.g. demand for coal, elasticity, etc. if the price of such a commodity rises, it will be withdrawn from some uses. If the price falls, it may be put to other new uses. Demand may be elastic in some uses and inelastic in others, e.g. in the case of electricity. A minimum of electricity will always be used whatever the price, for minimum lighting, etc. while demand for electricity for uses of cooking heaters, hot plates, etc. will be commodities more elastic.
  • Number of Substitutes. Demand for commodities having substitutes like tea and coffee, electricity or gas lights is usually pretty elastic. This is because when its price rises, substitute goods are used in its place and its demand falls sharply. Similarly when its price falls, it is used in place of other goods and its demand rises sharply.
  • Price of a Commodity. Demand for very high and very low – priced commodities is usually inelastic, e.g. salt as a low – priced commodity and a Rolls Royce motor car as a high – priced commodity has always a more or less inelastic demand. A priced at $ 30 lakhs may rise to $ 35 lakhs or fall to $ 25 lakhs, but the change in demand, if at all, would be negligible.
  • Urgency of Use. Demand for commodity the use of which can be delayed, postponed or avoided is usually very elastic, especially for moderately priced articles of comfort or necessaries for efficiency like fountain pens, labour saving devices, etc.
  • Proportion of Income Spent. Demand for commodity would be inelastic if the total sum spent on a commodity forms only a small part of a man’s total income. But if a substantial portion of income is spent on a commodity, a rise in its price will compel consumer to readjust his purchases and this may cause a large fall in demand.
  • Time Period. The longer the period of time over which we consider changes in demand in response to change in price, the greater shall be the elasticity. If time period is very small in which adjustments are not possible, the demand will not change much in response to change in price. But over a longer period of time, adjustments can be made and demand may shift from those goods where price have gone up to those whose prices are relatively lower. Hence, over a longer period demand is more elastic than over the short period.


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