Question

what determine the elasticity of demand and supply?

Answer 1

Ans-
Elasticity of demand -:
It is the numerical measure of degree of responsiveness in quantity demanded due to change in price of that commodity. It is measured by following equation-:

Elasticity of supply -:
It is the numerical measure of degree of responsiveness in quantity supplied due to change in price of that commodity. It is measured by following equation-:
e_s = ( % change in quantity supplied / % change in price )

Factors affecting Price Elasticity -:
1) No. of Substitutes - * Many substitutes ( e_p is high ) , if many substitutes are available small increase in the price levels of goods causes consumers to buy its substitutes.Therefore elasticity is high.
* Less substitutes ( e_p is low)

2) Nature of good - * Necessary good ( e_p is low)
* Luxury good ( e_p is high ) . Elasticity is high for Luxury good as they are sensitive to price changes.

3) Time period - * Short Period ( e_p is low)
* Long period ( e_p is high ).  The longer time consumers have to respond to a price change. They have more time to search for cheaper substitutes and switch their spending.leading to high elasticity

4) Definition of good - * Broad ( e_p is low) .If a good is broadly defined (Eg. demand for petrol ) demand is often inelastic.
* Narrow ( e_p is high)