The elasticity of demand for a factor refers to the degree of change in the quantity demanded of that factor in response to change in price of that factor. The quantity demanded of a factor is generally negatively related to its price. At a higher factor price, quantity demanded is lower while a lower factor price leads to an increase in quantity demanded. This relationship between price and quantity of a factor demanded only shows the inverse direction of change. The elasticity of demand for a factor quantities the extent of that change; it shows by how much amount (or percent) the demand for that factor changes in response to a given (per cent) change in its price. The elasticity of demand thus measures the degree of change and defines factor demand as elastic or inelastic depending on whether the extent of change is larger or smaller in relation to change in price.
The elasticity of demand for a factor is influenced by a number of factors such as the law of diminishing marginal productivity, the easy by which a factor can be substituted by the other, the significance of the role of that factor in production and the elasticity of demand for the output that a factor helps to produce.
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