Question

1. The concept of elasticity for demand is importance for determining the prices of various
factors of production. Discuss the various factors that influences the price elasticity of
demand
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Answer 1

Answer:

The concept of elasticity for demand is of great importance for determining prices of various factors of production. Factors of production are paid according to their elasticity of demand. In other words, if the demand of a factor is inelastic, its price will be high and if it is elastic, its price will be low.

Explanation:

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Answer 2

Elasticity of demand refers to the responsiveness of the consumers or buyers to a certain percentage of change or variation in price of any commodity or service.

Explanation:

Some factors affecting elasticity of demand:-

1. Nature of the commodity:The extent of the elasticity of demand or consumer responsiveness towards price change depends on the nature and use of the commodity in concern.For example,a commodity that is a necessity in human life such as food items,medicines etc usually have a low elasticity of demand or inelastic demand,implying that any price change understandably does not have a significant change in consumer demand.In contrast,a luxury good such as car,branded watches,clothes etc usually have a high elasticity of demand as people's choices are vulnerable towards these kind of products.
2. Availability of substitutes:The more substitute products there are for a particular product,the more responsive consumers/buyers will be to any price change or higher the elasticity of demand for that product.Availability of substitutes indicates that people have more options or choices regarding the product and higher the demand elasticity.
3. Income change:Income of elasticity is evidently less among rich people compared to the poor or middle income groups.It can be understood that rich people think less about the commodity prices than the poor and middle class counterparts.
4. Product price:In many instances,product prices also affect demand elasticity.Expensive products such as electronic appliances,watches,branded clothes,accessories etc exhibit higher demand elasticity than low priced products.People are generally more sensitive to a price change of an already expensive product.
5. Number of uses:The more the number of use or the utility of a product,the more sensitive people are about its price fluctuations and hence,higher the demand elasticity of the product.As a product becomes multipurpose its demand rises among people and so does the price sensitive.