Advertisement Remove all ads

Factors Influencing the Elasticity of Demand

Advertisement Remove all ads



Factors influencing the elasticity of demand :

1) Nature of commodity : 

By nature we can classify commodities as necessaries, comforts and luxury goods. Demand for necessaries like foodgrains, medicines, textbooks etc. is relatively inelastic and for comforts and luxury goods like cars, perfumes, furniture etc. demand is relatively elastic.

2) Availability of substitutes :

Demand for a commodity will be more elastic, if its close substitutes are available in the market. For example, lemon juice, sugarcane juice etc. But commodities having no close substitutes like salt the demand will be inelastic.

3) Number of uses :

Single use goods have a less elastic demand. Multi-use goods have more elastic demand, For example, coal, electricity etc.

4) Habits :

Habits make demand for certain goods relatively inelastic. For example, addicted goods, drugs etc.

5) Durability :

The demand for durable goods is relatively elastic. For example, furniture, washing machine etc. Demand for perishable goods is inelastic. For example, milk, vegetables etc.

6) Complementary goods :

The demand for a commodity which is used in conjunction with other commodities to satisfy a single want is relatively inelastic. For example, a fall in the price of mobile handsets may lead to rise in the demand for sim cards.

7) Income of the consumer :

Demand for goods is usually inelastic, if the consumer has high income. The demand pattern of a very rich and an extremely poor person is rarely affected by significant changes in the price.

8) Urgency of needs :

Goods which are urgently needed will have relatively inelastic demand. For example, medicines. Luxury goods which are less urgent have relatively elastic demand.

9) Time period :

Elasticity of demand is always related to period of time. It varies with the length of time period. Generally speaking, longer the duration of period greater will be the elasticity of demand and vice-versa. This is because a consumer can change the consumption habits in the long run in favour of cheaper substitutes of the commodities.

10) Proportion of expenditure :

If the proportion of expenditure in a person's income is small, then demand for the product is relatively inelastic. For example, news papers. If the proportion of expenditure is large, then demand for the product is relatively elastic.

If you would like to contribute notes or other learning material, please submit them using the button below.
Advertisement Remove all ads

View all notifications

      Forgot password?
View in app×