Factors affecting elasticity of demand

Prepared By:- KVS, Delhi Region

FACTORS AFFECTING ELASTICITY OF DEMAND

Prepared By:- KVS, Delhi Region

DEFINITION

• It is defined as proportionate change in quantity demanded to proportionate change in price .

• Price elasticity of demand measures the responsiveness of demand of a commodity to a change in its price .

Prepared By:- KVS, Delhi Region

FACTORS AFFECTING ELASTICITY OF DEMAND

• Nature of commodity• Availability of close substitute• Number of uses• Proportion of total expenditure spent on the

product• Level of income Income of consumer• Habit• Time period

Prepared By:- KVS, Delhi Region

Nature of commodity• Necessities - Less elastic

• Comforts - Elastic

• Luxuries - More elastic

Prepared By:- KVS, Delhi Region

2) Availability of Close Substitutes

• Good having number of close substitutes will have an elastic demand

• Good with no close substitute will have an inelastic demand

Prepared By:- KVS, Delhi Region

NUMBER OF USES

• More the number of uses a commodity can be put to- More elastic is the demand and vice versa.

Prepared By:- KVS, Delhi Region

PROPORTION OF TOTAL EXPENDITURE SPENT ON A COMMODITY

Larger the proportion of total expenditure spent on a good higher will be the elasticity and vice versa.

Prepared By:- KVS, Delhi Region

LEVEL OF INCOME

• Higher the level of income, lower the elasticity of demand and vice versa.

Prepared By:- KVS, Delhi Region

HABIT

• If you are habituated to a particular good, elasticity will be less and vice versa.

Prepared By:- KVS, Delhi Region

TIME PERIOD

• During short period most of the commodities are having less elasticity of demand.

• In the long run when substitutes are available demand for the goods will become more elastic

Prepared By:- KVS, Delhi Region

Questions for self-evaluation

• What is price elasticity of demand?• Which has greater elasticity-luxuries or

necessities?• When is the demand of a commodity called

elastic? • What will be the elasticity of demand if it has

close substitutes?• Why is the demand for water inelastic?

Prepared By:- KVS, Delhi Region

Mrs. Anita Bhardwaj KV, Vigyan Vihar

Mrs .Monika Bajaj KV, Tagore Garden

Mrs. Leena Singh KV, AGCR

Mr. Sri Keshav KV, no.2 Delhi Cantt

Mrs .Ritu Tanwar KV, AFS Rajokri

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