Question

1.Several factors affect the price elasticity of demand. What are those factors?

Any real life examples or references would help too!

Answer 1

Ans 1: The factors which affect the price elasticity of demand are as follows:

• Availability of close substitutes: If a good has a large number of substitutes available in the market, then its demand will be elastic. If its price rises, the consumers would switch to its substitutes available in the market. On the other hand, if good has less availability of substitute goods, then its price elasticity of demand will be less elastic.
• Nature of the commodity: The price elasticity of demand also depends upon the whether the good is necessity, comfort or luxury. A necessity good like vegetables, water, salt, etc will have a inelastic demand, the demand would not change when the price changes. On the other hand, goods like comfort goods, Fan, refrigerator. etc, the demand will be elastic, the demand will change when the price changes. The luxury goods like Air conditioner, Car, etc will have more elastic demand as compared to comfort goods.
• Income of the consumer: If the consumer's income level are high, then demand for goods will be less elastic as compared to the demand for goods by a consumer whose income levels are low. the consumer whose income levels are low, the demand is elastic for them for many products.
• Time Period: In the short run, the demand for any product is generally inelastic and in the long run, the elasticity is relatively elastic. This happens because people find it difficult to switch on other goods in the short run or cannot decrease the consumption of that good in short run, or it is very difficult to change consumption patterns in short run. It can all be changed only in long run.