Explain any six factors determining price elasticity of demand.
Answers
Answer:
Factor 1: Income
A person's ability to buy goods changes as his/her income changes
Factor 2: Market Size
As number of consumers in an area changes, so does the market size
Factor 3: Consumer Taste
Consumers tastes change, products gain and lose popularity
Factor 4: Consumer Expectations
Expectations about future price of items affect individual behavior
Factor 5: Substitutes
Products used in place of each other
Factor 6: Complements
Goods that are used together
Explanation:
please mark me brainliest and please follow me
Explanation:
Some of the major factors affecting the elasticity of demand of a commodity are as follows:
A change in price does not always lead to the same proportionate change in demand. For example, a small change in price of AC may affect its demand to a considerable extent/whereas, large change in price of salt may not affect its demand. So, elasticity of demand is different for different goods...
1)Nature of commodity:
Elasticity of demand of a commodity is influenced by its nature. A commodity for a person may be a necessity, a comfort or a luxury.
2)Availability of substitutes:
Demand for a commodity with large number of substitutes will be more elastic. The reason is that even a small rise in its prices will induce the buyers to go for its substitutes. For example, a rise in the price of Pepsi encourages buyers to buy Coke and vice-versa.
3)Income Level:
Elasticity of demand for any commodity is generally less for higher income level groups in comparison to people with low incomes. It happens because rich people are not influenced much by changes in the price of goods. But, poor people are highly affected by increase or decrease in the price of goods. As a result, demand for lower income group is highly elastic.
4)Level of price:
Level of price also affects the price elasticity of demand. Costly goods like laptop, Plasma TV, etc. have highly elastic demand as their demand is very sensitive to changes in their prices. However, demand for inexpensive goods like needle, match box, etc. is inelastic as change in prices of such goods do not change their demand by a considerable amount.
5) Postponement of Consumption:
Commodities like biscuits, soft drinks, etc. whose demand is not urgent, have highly elastic demand as their consumption can be postponed in case of an increase in their prices. However, commodities with urgent demand like life saving drugs, have inelastic demand because of their immediate requirement.
6)Time Period:Price elasticity of demand is always related to a period of time. It can be a day, a week, a month, a year or a period of several years. Elasticity of demand varies directly with the time period. Demand is generally inelastic in the short period.