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Question
How does the nature of a good affect its elasticity of demand?
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Solution
Elasticity of demand of a good is influenced by its nature in the following ways:
- When a commodity is a necessity, its demand is generally inelastic (Ed < 1) → food grains, salt, school uniforms, etc.
- When a commodity is a comfort, its demand is generally unit elastic (Ed = 1) → cooler, TV, mobile phone, etc.
- When a commodity is a luxury, its demand is generally elastic (Ed > 1) → car, home theatre, air conditioner, etc.
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RELATED QUESTIONS
How does change in the price of complementary good affect the demand for the given good? Explain with the help of an example.
A 5 percent fall in the price of a good raises its demand from 300 units to 318 units. Calculate its price elasticity of demand.
State whether the following statements are TRUE or FALSE :
The demand of foodgrains is inelastic.
Match the following:
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Group A
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Group B
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1. Cars and petrol
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a. Elastic demand
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2. Point method
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b. Complementary
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3. Necessary goods
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c. Geometric method
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d. Inelastic demand
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Assertion (A): The demand for soap, salt, matches etc. is highly elastic.
Reason (R): The demand for soap, salt, matches etc. is highly inelastic because the consumer spends a very small amount of expenditure in relation to his/her income.
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How does the nature of a commodity affect its price elasticity of demand?
What type of demand characterizes necessity goods compared to luxury goods?
How does the time period affect the elasticity of demand?
