Question

Mention two factors affecting price elasticity of demand.

Answer 1

Two key factors that influence the price elasticity of demand are:

1. Availability of substitutes: When a product has many close substitutes, its demand tends to be more elastic, as consumers can easily switch to alternatives. On the other hand, if there are few or no good substitutes, the demand is usually less elastic.
2. Nature of the commodity: Whether a good is a necessity, a luxury, or a comfort plays a major role in determining its price elasticity. Necessities typically have inelastic demand because they are essential, while luxuries and comforts usually have elastic demand since they are not urgently needed and can be given up when prices rise.