Question

Explain any four factors influencing elasticity of demand.

Answer 1

The factors influencing elasticity of demand are as follows:

1. Nature of commodity: By nature we can classify commodities as necessaries, comforts, and luxury goods. Demand for necessaries like grains, 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 will have inelastic demand.
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.