Question

How is the elasticity of demand of a commodity affected by the amount of income spent on a commodity?

Answer 1

The percentage of a consumer's income that is spent on a commodity determines how elastic its demand is. The elasticity of demand will decrease when the percentage of income spent on a commodity decreases, and vice versa. Since the consumer spends a relatively little percentage of his income on items like soap, salt, matches, toothpaste, newspapers, etc., the demand for these products is extremely inelastic. The consumer will continue to purchase about the same amount of these items even if their costs increase because it won't significantly affect his budget. The demand for these products is hence inelastic. However, since the consumer spends a significant portion of his money on clothing, furnishings, and other items, the demand for these items is probably elastic. The price elasticity of such items is likely to be high since a change in their price will have a significant impact on the consumer's budget and, consequently, his demand.