Question

Discuss any three/ four factors determining price elasticity of demand.

Answer 1

Four Factors Affecting Price Elasticity of Demand

1. Nature of the goods: More necessary the good for a consumer, less elastic is the demand for the good. This is because it is difficult to give up the consumption of a necessary good.
2. Number of substitutes: More the number of close substitutes of a good available in the market, higher is the price elasticity of that good. It is because a consumer can easily shift from one substitute to another in case of a price change.
3. Number of uses: More the number of uses of a good, more likely is the demand of that good price elastic.
4. Proportion of income spent: The demand of a good will be price elastic if proportion of income spent on that good is large. It is because the total expenditure on the good changes considerably.