Question

Which of the following is NOT a determinant factor of the price elasticity of demand for a good?

-the availablity of complementary on the goods

-the proportion of income spent on the good

-the availability of close substitute goods

-the amount of time that has elapsed since the price change

-the taste and preferences of consumers

Answer 1

the amount of time that has elapsed since the price change

The elasticity of Demand measures the extent to which quantity demanded of a commodity increase or decrease in response to increase or decrease in any of its quantitative determinants. The elasticity of demand measures the responsiveness of the quantity demanded of a good, to change in its price, price of other goods and change in consumer's income.

Some goods are elastic and others are inelastic because of various factors like: Nature of commodity, availability of substitutes, different uses of commodity, postponement of the use, income of the consumer, habit of consumer, proportion of income spent on a commodity, price level and time period.

Determinants of Elasticity of Demand:

1) Nature of the commodity: Ordinarily, necessaries like salt, kerosene oil have less than unitary elastic demand. Luxuries, like air conditioner, costly furniture, etc have greater than unitary elastic demand. The reason is that change in their prices has a great effect on their demand. Comforts like milk, fans, etc have neither very elastic nor very inelastic demand. Jointly demanded goods, like, car and petrol, pen and ink, camera and film, etc have ordinarily inelastic demand.

2) Availability of substitutes: Demand for those commodities which have substitutes are relatively more elastic. The reason being that when the price of a commodity falls in relation to its substitute, the consumers will go in for it and so its demand will increase. Commodities having no substitutes like cigarettes have inelastic demand.

3) Income of the consumer: People whose income are very high or very low, their demand will be inelastic. Because rise or fall in price will have little effect on their demand. Conversely, middle income groups will have elastic demand.

4) Habit of consumer: Goods in which a person becomes accustomed or habitual will have inelastic demand like coffee, tobacco etc. It is so because a person cannot do without them.