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 ?
Answers
Answer:
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Explanation:
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.
Various factors which affect the elasticity of demand of a commodity are:
Nature of commodity:
Availability of substitutes:
Income Level:
Level of price:
Postponement of Consumption:
Number of Uses:
Share in Total Expenditure:
Time Period:
Terms in this set (4)
Substitutability. The larger number of substitute goods the greater the price elasticity of demand. ( ...
Proportion of Income. The higher the price of a good relative to someone's income the greater the price elasticity of demand. ( ...
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Time.
The concept of price elasticity of demand is important for formulating government policies, especially the taxation policy. Government can impose higher taxes on goods with inelastic demand, whereas, low rates of taxes are imposed on commodities with elastic demand.