Question

Explain the factors determining the elasticity of demand.

State the factors determining elasticity of demand.

Explain factors that determine elasticity of demand of a commodity.

Explain any four factors determining the price elasticity of demand.

Answer 1

The following are the factors influencing the elasticity of demand:

1. Nature of the commodity: Demand tends to be relatively elastic for luxuries and comforts such as “air conditioners.” And demand is inelastic for necessary items such as salt. Generally, all commodities can be dividend into three categories i.e.,
   1. Necessaries of Life: Essential items required for basic survival, like food, water, and shelter.
   2. Conventional Necessaries: Items that are not essential but are considered important for a comfortable life, like clothing and household appliances.
   3. Luxury Commodities: High-value items that provide comfort and status, like designer clothes, expensive cars, and jewellery.
2. Availability of substitutes: The greater the number of substitutes available for a commodity, the greater the elasticity of demand for that commodity. In other words, the demand for a product that has close substitutes is relatively elastic. However, salt has no substitute, and therefore, its demand is always inelastic.
3. Composite Commodities: A commodity having several uses tends to be more elastic in demand. For example, electricity can be used for several uses, such as lighting, cooking, heating, etc however, a single-use commodity has an inelastic demand.
4. Urgency: If wants are more urgent, demand becomes relatively inelastic. If wants can be postponed, demand becomes relatively elastic.
5. Habits: Habits make the demand for certain goods inelastic, for example, cigarettes, drugs, and liquor.
6. Income: Demand for goods is usually inelastic if the consumer has a high income.
7. Postponement of Consumption: The demand is elastic if we can postpone the purchase of goods and services, such as in the case of electronic goods. But the purchase of essential items like food grains, salt, etc., cannot be postponed, and therefore, the demand for such goods is inelastic.
8. Complementary Goods: When a good is linked with the use of other goods, demand may be inelastic or elastic depending on the demand for complementary goods. For example, the demand for petrol or diesel depends on the use of automobiles, agricultural equipment like water pumps, etc.
9. Durability: The demand for durable goods is relatively elastic. For example, furniture, washing machines, etc. Demand for perishable goods is inelastic. For example, milk, vegetables, etc.