Question

Explain how the following factors determine the elasticity of demand of a good?
(a) Proportion of income spent on
a good by aconsumer
(b) Nature of commodity
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Answer 1

Answer:

a) THE PROPORTION OF INCOME THAT IS SPENT ON THE COMMODITY

In general, the greater the proportion of income that is spent on a good, the more elastic the demand for it is likely to be in response to a change in its own price. A rise of 50% in the price of a bag of sugar is unlikely to have a significant effect on demand

Explanation:

b) Certain goods by their very nature tend to have an elastic or inelastic demand. By nature goods may be classified into luxury, comforts or necessary goods. ... Thus, for example: The demand for food-grains, cloth, salt etc., is generally inelastic while that for radio, furniture, car etc., is elastic.